Master service agreements and statements of work are becoming standard operating procedure for many midsize business owners. These documents spell out either the overall or per-project business relationship between parties, so everybody is on the same page as initiatives move forward.
In many ways, these documents are a guiding force for companies as they navigate a fast-changing business environment, exploding with evolving technologies and new opportunities.
When done right, they ensure that tasks are completed on time—and stakeholders get the money they’re due. They also can safeguard a company’s own interest and even set it up for a potential acquisition. In other words, it’s vital that the legal terms and conditions spelled out in the documents cover all aspects of the business relationship.
Here are 5 topics that every service agreement should cover:
1. The basics
The agreement must establish the relationship between the parties; who provides what product or service; and what deliverables or project outcomes are expected and when. The agreement also should cover how the parties will evaluate the final product to ensure it meets all goals.
But it’s also critical it includes other basics, including what jurisdictions would apply when disputes arise; whether disputes would head to arbitration or court; and a force majeure clause to handle issues that the parties can’t control.
2. Bills and payments
With a solid service agreement, there should be no surprises about payment. Any MSA should lay out invoice and payment deadlines, policies for handling late payments and who covers the cost for collections and legal fees if the money never comes.
3. Deliverable evaluation and acceptance
The document should state how the deliverables will be accepted and how long parties have to review and provide feedback about the work and make appropriate fixes. Objective metrics to assess the work, which should be included in the service agreement, can streamline this stage of the process.
Sometimes projects don’t go as planned and companies need to part ways. A service agreement should list the reasons why the relationship may need to be terminated, including both without cause and for cause reasons; how much notice is required to terminate the contract; and other strategies for an exit.
5. Business protections
The goal of just about any contract is to diminish risk and increase reward for everybody involved. The agreement should set out any disclaimers of warranty, indemnification, limitation of liability and what insurance coverage is necessary for each party to hold.
You’ll also want to craft provisions that protect the intellectual property and confidential business information of each company and prevent parties from poaching each other’s employees.
The Statement of Work or SOW
Whereas Master Services Agreement cover the global relationship between parties, Statements of Work focus on specific projects, but are still governed by the MSA. SOWs follow the MSA’s general terms and conditions, and include deliverables and timelines for the party providing services to the client. An effective SOW should also provide information on performance outcomes as well as standards and metrics. SOWs must be created with the MSA in mind to ensure there are no legal conflicts with the terms of the MSA.
Why is legal review of MSAs and SOWs so critical?
Service agreements are binding legal contracts. A lawyer with deep knowledge of MSAs and related business matters can help you vet the documents, spotting language in a statement of work, for example, that might weaken an MSA or might not fully consider all the legal terms and conditions of the service agreement. They also can help you craft clauses to include in the documents to protect your own business from future liabilities.
When carefully crafted, MSAs can speed up the work required to launch new revenue-generating projects and shift business plans based on the dynamic needs of the parties. But, before you move forward, just be sure you’ve checked the paperwork with an attorney to ensure that the documents accurately represent your company’s aims and interests.
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