Are you a service provider providing ongoing or additional work for your clients?
If you are, it may not be the most efficient option to have to write up and negotiate a new contract every time you provide additional services.
It seems tiring. We think so too.
A Master Services Agreement is beneficial as it sets out all the critical terms between you and your ongoing client so you can solely focus on providing the best service.
Want to learn more about how a Master Services Agreement can benefit you and your clients?
What is a Master Services Agreement?
Let’s get into understanding what a Master Services Agreement is.
A Master Services Agreement sets out the terms and conditions between you as the service provider and the recipient of your services which will be your clients.
If your small business provides services or is looking to provide services to another entity, you need to set out the terms and conditions of those deliverables.
The Master Services Agreement sets out, in writing, terms including the services to be provided, how and when the services will be provided, and payment details regarding the services.
Here is an example.
Say you’re a Web Designer, and you sign a Master Services Agreement with an online eCommerce store. Your Agreement will cover all the work you will provide to the eCommerce business over 12 months.
Your Agreement will cover things like payment requirements, intellectual property, limitation of liability, and termination. Having everything covered in a Master Services Agreement means you don’t need to write up a contract each time you offer a different service.
Then, each week, you will sign a ‘Statement of Work’ under which you will agree to carry out specific projects for set prices. The purpose of a Statement of Work is to cover individual projects under the Master Services Agreement.
You would include a sentence that may say, ‘this Statement of Work is made under the Master Services Agreement’. All the clauses and terms that apply to the Master Services Agreement will apply to each specific project, meaning that you don’t need to write up a contract.
Why do I need a Master Services Agreement?
Why can’t I just have a different contract each time I provide a service, you ask.
Well, the short answer is you can. However, the benefits of having a Master Service agreement for ongoing work outweigh writing up a new contract each time.
Still not convinced? Here are the benefits
- The term ‘master’ intends to be a standard agreement, covering all different kinds of services you provide to your clients
- The Agreement is broad so that you can cover Adhoc and unique services
- A Master Services Agreement is efficient and will save you the hassle of drafting a new contract if you have an ongoing business relationship with an existing client
- If you provide a range of services, it will be a good idea to standardise your terms and conditions for use
- You can simplify future agreements and future contracts
- It will secure revenue streams
- It will protect your liability
- It helps prevent disputes arising throughout the term of the entire Agreement as an early form of dispute resolution
- It will simplify the contract negotiation process with your client
What’s included in a Master Services Agreement?
A well-drafted Master Services Agreement will usually address the following terms of the Agreement:
- Provision of services/service delivery and the scope of work
- Timing, project management- How many business days it will take to complete the task
- Pricing and purchase orders
- Payment terms, fees & expenses
- Warranty, alterations and rejection of services
- Dispute resolution
- Confidentiality, confidential information, Confidentiality Agreement terms (prevent reverse engineering)
- Copyright and intellectual property rights (i.e. logos, licenses)
- Protection of personal information
- Statement of works
- Non-solicitation of personnel and clients
- Limitation of liability, waivers and risk allocation in situations of property damage
- Insurance, tax and super obligations of both parties
- Termination and severability of the Agreement
Let’s go through some of the main terms below so you know what to include in your Master Services Agreement.
Intellectual property rights
Your Master Services Agreement should include an Intellectual Property (IP) clause to cover existing and new materials.
Existing materials are materials already owned or licensed by your client. It’s therefore essential for you to have permission to use any existing materials you require to perform your services.
New materials may be any software you build or develop for your client. Whether you own the IP rights in new materials will depend on the agreement that you establish with your client.
Your clients also have specific client responsibilities to ensure that you complete your task on time.
To ensure that you have a smooth relationship with your client, it would be a good idea to clarify the following things:
- Identify your point of contact with your client or end-user
- If the authorised decision-maker isn’t available, who is second in charge
Ensure you have cyber security measures in place
Termination of the Agreement
It will be good to establish how and when you can terminate your Master Services Agreement.
You may wish to include examples of termination of your Agreement if the following situations occur:
- Overdue payments
- If you no longer have the material to provide your services
When you draft up your Master Service Agreement, it’s essential that you hire a lawyer and set out the suspension and termination clauses clearly to minimise any loss to all parties involved.
Limitation of liability and waivers
Including a limited liability clause will ensure that you’re protected if something goes wrong.
Both you and your client will understand that if something occurs, you will only be liable for damages you have reasonable control over.
For example, the clause will reflect that:
- If there are malfunctions or losses associated with the third-party products, you’re covered
- If your client tries to fix a problem and it causes more damage, you will be covered if they didn’t inform you
- Any damages outside those stipulated in the Agreement will not be your responsibility
What other contracts do I need?
It is wise to establish a Master Agreement first. However, you may need additional, more specific contracts depending on your work.
For example, working in the IT or design industry can get confusing if you provide various services.
We’ve provided some examples of other contracts you may need below to help you out.
Statement of Work
A detailed Statement of Work (SOW) should be drafted if your client has specific expectations, timelines, and variations on a project.
An SOW functions by allowing your clients to order new services without having to create a new contract every time. It sets the services to be performed and the expectations attached to them.
The SOW is a legally binding agreement and is included as part of your original Master Services Agreement, which would have already set out specific terms, clauses, pricing etc.
So if your client wants to order specific additional services from your, executing an SOW is the way to go.
Service level agreement
A Service Level Agreement outlines the level of service you will provide to your client through various performance measurements.
For example, if your client expects you to perform a technical issue as soon as it’s identified, a Service Level Agreement will cover this.
Similar to an SOW, the Service Level Agreement will also sit under the Master Services Agreement.
Other important questions
What’s the difference between a Master Services Agreement and a Consultancy Agreement?
Professional consulting services use Consultancy Agreements explicitly. Therefore it will include specific clauses surrounding the rights and obligations of professional services provided.
They are like Master Service Agreements but are tailored to the service provided by a consultant to a client.
Is a Service Agreement legally binding?
A Service Agreement is a contract between two parties, so it is legally binding.
If the Service Agreement is not performed as promised, there will be a breach.
Essentially, it sets out the terms of service agreed to between the parties in writing, so each party understands their rights and obligations.
What can I do if my Service Agreement has been breached?
Unless force majeure unforeseeable circumstances preventing contract terms from being met will determine a breach.
Once this is understood, it is generally better that both parties reach an alternative agreement on the steps forward. This might be in the way of:
- Completing services differently
- At a different time
- Compensation for damage incurred
- Refund for the work.
In some cases where there is a breach, it may be best to hire a lawyer to determine which party is wrong or whether an amicable outcome is possible.
How does a Master Service Agreement deal with liability?
A Master Service Agreement will outline obligations by both parties to the contract; if either party breaches the Agreement, they may be liable. Depending on the Agreement, a service contract will limit or impose liability on either party.
Service contracts may include clauses that reduce liability on the half of the provider where there is damage. For example, suppliers may enforce ‘exclusion clauses’ to exclude:
- Implied warranties
- Liability for consequential losses based on their services
- Liability to replace goods or services if there’s a breach
Besides this, the Master Service Agreement may also include a defect liability period. A defect liability enforces the period of time which a customer can argue there is a defect with the product or service.
Ultimately, there are many different ways a Service Agreement may deal with liability.
Who generally owns the intellectual property between a client and contractor?
Generally, intellectual property created by an individual will be owned by them unless the rights are assigned through some agreement.
Therefore, where an independent contractor works for a client, their intellectual property will be held by them. This is unless the rights are assigned to the client through a written agreement.
Most contractor agreements will include provisions assigning applicable intellectual property to the service receiver for privacy purposes.
How does a Service Agreement cover insurance, tax and super?
The insurance, tax, and super obligations for the activities should be covered in the Service Agreement. For best practice, each party should be responsible for taking care of their own separate liabilities.
Some key terms related to tax include:
- Taxable supply
- Tax invoice
- Services tax & GST
These tax obligations should align with the Australian Taxation Office guidelines and regulations. No written notice and a failure to act following the terms may lead to negligence on the parties’ behalf.
Your Master Services Agreement should be your comprehensive go-to document if you wish to provide ongoing services to a client.
It’s important to cover all the essential clauses and terms such as:
- Intellectual property rights
- Client responsibilities
- Delivery of work
Writing a Master Services Agreement can be tricky, so why not use our Master Services Agreement template if you want to provide services to another entity or receive services from another entity without any difficulties. And while you’re at it, don’t forget to explore other legal documents from our extensive library!