Master service agreement (MSA) explained: how it works and how it differs from T&Cs

A master service agreement, or MSA, is the contract that sets the ground rules for how two businesses will work together over a series of projects. Instead of negotiating a new contract every time a piece of work comes up, the parties sign the MSA once and then add a short schedule for each project. It is a useful document, but only if it is drafted properly and matches the way your business actually operates. Below I explain what an MSA is, how it works day to day, a drafting trap I see in real MSAs, and how it differs from ordinary terms and conditions.

What is a master service agreement?

In short, an MSA is a fairly lengthy and complex document that aims to clarify the relationship between two parties and how they are to collaborate on future projects. It sets the main rules for how the parties will work together going forward.

Then, when the need arises, the parties sign schedules (sometimes called projects or statements of work) that specify exactly how they will work together on that particular piece of work. For example, a schedule might set out what kind of services party B is to provide to party A. That project is then governed by the master service agreement, and so is every future project signed under it.

Typically the MSA specifies:

• Responsibilities. What each party is responsible for in the relationship.
• Invoicing and payment. How invoices are to be sent and when they are to be paid.
• Dispute resolution. How any disputes between the parties are to be resolved.

Because these points are settled once in the MSA, the parties do not have to renegotiate them for every new piece of work. That is the main attraction of the structure: the heavy lifting is done up front, and each new project only needs a short schedule.

Drafting an MSA: consultancy example

Before looking at how an MSA works in practice, keep one thing in mind. An MSA is only useful as a document if it is properly drafted and properly reflects you and your business.

Take a simple example. You are a consultant providing advisory services to other businesses in the UK. You want each client to sign a master service agreement with you. Then, every time a client comes to you with an ad hoc issue, you ask them to sign a project schedule under the MSA, and that project is governed by the MSA.

That is a sensible structure. But if the MSA is not drafted well, then every single time that client, or any other client, signs a schedule, you are not properly protected. The weakness in the main contract is repeated across every project that sits under it, with every client who signs it. A poorly drafted MSA is not one bad contract; it is a template for many bad contracts.

MSA vs statement of work: inconsistency risk

One of the issues I have identified in MSAs I have reviewed for my clients is an inconsistency between the body of the contract and the project schedules.

Here is how it goes wrong. The body of the MSA, the lengthy part, says that the consultant can only deliver an invoice once the services have been delivered. The project schedule, on the other hand, says the project can be terminated simply by giving notice, even before the project has been completed.

Put those two clauses together and the legal consequence is unpleasant for the consultant. If the client terminates the project before it is complete, the project has not been properly completed, so in theory the consultant cannot invoice for their services. The consultant has effectively done work for free, and will have more difficulty recovering the fees they would want to invoice to that client.

Notice that neither clause is wrong on its own. Invoicing on completion is a normal term. Termination on notice is a normal term. The problem is that nobody checked them against each other, and the combination leaves the consultant exposed.

This is why the MSA and the schedules need to be read together as one package. A clause that looks harmless in the schedule can undo the protection you thought you had in the main agreement.

How does an MSA work in practice?

In day-to-day use, the process looks like this:

• Step 1: sign the MSA. Every time a new client wants to use your services, you ask them to sign the master service agreement. This happens once per client, at the start of the relationship.
• Step 2: sign a schedule for each project. As the client requires your services, you get them to sign a schedule for that specific project.
• Step 3: the schedule fills in the detail. The schedule specifies the exact services to be delivered by the consultant to the client, the fees for that project, and any specific deliverables the client has requested.

The MSA stays in the background governing all of it. The schedule is short because it only needs to cover what is different about this particular project: the scope, the price and the deliverables. Everything else, from payment terms to how disputes are handled, is already dealt with in the MSA.

MSA vs terms and conditions

People often ask how a master service agreement differs from standard terms and conditions. Both are contracts that set out the rules of a commercial relationship, but they are built for different situations, and there are a few differences.

• Structure. The MSA is more of an umbrella contract, with the specifics of each project detailed in a schedule. Terms and conditions are typically comprehensive: they specify everything about a specific transaction between a business and its client in one document.
• Who uses them. The MSA is typically used between businesses. Terms and conditions can be used between businesses too, but they are also used between a business and a consumer.
• Where they sit. Terms and conditions might, for example, be hosted on a website. When you buy products from a website, the terms and conditions for that sale are the entire document and the entire relationship between the two contracting parties.

In other words, terms and conditions are designed to stand alone for a single transaction, whereas an MSA is designed to be built on over time.

So if you have an ongoing, project-based relationship with other businesses, an MSA with project schedules is usually the better fit. If you sell the same thing in one-off transactions, particularly to consumers, terms and conditions do that job.

Next steps

If you work with clients on repeat projects, get a master service agreement drafted that reflects how you actually deliver and invoice your work, and have your project schedules checked against it so the two never contradict each other. A good MSA is just one piece of the legal puzzle when it comes to running a business properly, so it is worth having a commercial solicitor review it alongside your other key contracts.