July 27, 2015

Utilizing Master Services Agreements Has Many Advantages

Faegre Baker Daniels partner Brian Clifford authored the following article for the Control System Integrators Association in July 2015. 

Clients frequently ask me to look at a master services agreement (MSA) by which several small integration projects or separate control system deliverables will be covered under a single overarching legal agreement. Typically the business terms, such as the price, schedule and scope of services, are included in individual scopes of work (SOW) documents issued under the MSA, while the legal framework for all interactions between the two companies during the term of the MSA is covered in the master agreement itself.

There are several business reasons to like MSAs, including the fact that they may create a long-term sticky relationship with a client since an automation vendor with an MSA will have less ramp-up time to take on new work for the customer than a vendor they need to formulate a new contractual relationship with. But MSAs have legal benefits too. Here are a few examples to consider:

  • Sales and project support staff can concentrate on pricing and efficiency. If the legal risks and protections of the parties have already been established in the MSA by the risk management and legal consultants, an automation vendor’s staff can focus on areas within their expertise. SOWs can be negotiated with little need for additional legal and risk management support. Legal terms, such as indemnity arrangements, intellectual property provisions, insurance requirements, warranties and dispute resolution procedures should only be in the MSA and not addressed in the SOWs. And the MSA should control over any conflicting or additional legal terms inserted into the SOW (or a related proposal, purchase order or invoice). 
  • Risk management terms can be addressed globally. When an MSA is used, the customer and the control systems vendor naturally will have a higher-level view of the parties’ overall business relationship. For example, if a separate agreement was used for each SOW, a limitation of liability provision capping an automation contractor’s risk to the contract price may not be reasonable or acceptable to the customer. But if the overall MSA relationship is considered, there may be a greater opportunity to negotiate such a maximum limit on the vendor’s risk exposure arising from its relationship with the customer.
  • Confidentiality provisions can cover project proposals. Due to the nature of the control system and integration market, confidentiality can be a key term for both of the parties. Worries regarding exposing sensitive information often arise well before an agreement is signed by the parties, typically in the early conceptualizing and estimating phase. Instead of requiring separate confidentiality agreements for each project discussion, an MSA can cover these types of exchanges of information regarding potential new work.

Of course, MSAs are not appropriate in all circumstances. For particularly large or complex projects, an SOW may not be sufficient and a full project agreement should be negotiated. Likewise, if there is a lot of volatility in the marketplace, a long-term arrangement on terms such as pricing, interest and payment cycles may not be advantageous. But the next time a new project comes in, you may want to consider utilizing an MSA. 

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