Who is this article intended for?
This article series is aimed at new or junior lawyers and can also be shared by in-house legal teams with their commercial colleagues who deal with contracts. The aim of the series is to provide a foundational understanding of common contracts businesses will enter into, offering insights into why they are important and what key legal aspects need to be considered. Whether you are just starting in the legal field or need to ensure that your business colleagues are well-informed about contract essentials, this guide will help with navigating the complexities of commercial agreements effectively.
Master agreements are business contracts which could have many names: master agreement, master goods/services agreement (aka MGA/MSA), framework agreement and umbrella agreement are all common, We will refer to MSAs here for ease.
What is a master agreement and why do you need one?
MSAs may be used to establish a generic contracting framework between two or more parties. It is important to note that an MSA doesn’t in itself involve the supply of any particular goods or services. Instead, an MSA sets out a legal agreement between the parties pursuant to which they can subsequently enter into separate order forms or statements of work (we will refer to them both here as SOWs) in which the supplier will agree to supply, and the customer will agree to purchase, certain goods and/or services. It is in these SOWs that more specific details are agreed in respect of what is actually going to be supplied and purchased.
MSAs are often used by technology suppliers, where those businesses may provide a mix of hardware, software (e.g. use of SaaS) and professional services such as support and training. However, any business expecting to engage in multi-supply arrangements can benefit from using an MSA.
When would you use a master agreement?
If a business customer (as opposed to a consumer) and a supplier intend to enter into a long-term supply arrangement whereby multiple types of goods/services will be supplied or goods/services are to be provided on several distinct occasions over an extended period of time, then an MSA may be the most appropriate contracting method.
The main benefit of an MSA is that the parties avoid having multiple long contracts (thereby saving time and money) and instead the majority of the generic contracting terms are agreed at the outset in the MSA and agreeing each SOW should be simpler and quicker.
For these reasons, where the supply relates to a short term or one-off arrangement an MSA isn’t the best format.
What should a master agreement include?
An MSA would usually include the following provisions:
- General obligations about the supply of goods/scope of the services which may be provided.
- Payment terms.
- General warranties and indemnities.
- Data protection.
- Confidentiality.
- Ownership of intellectual property.
- Limits on each party’s liability.
- Term of the master agreement (i.e. the period during which SOWs can be entered into) and how it may be terminated.
- Dispute resolution and jurisdiction.
Each SOW should then clearly set out:
- The customer’s requirement for certain goods, licences or services, which the supplier agrees to provide. So, there may be separate SOWs for software development and software licensing or for licences of different software products. Whatever is being purchased, it is important that full details are included in the SOW so both parties know what is expected.
- The charges payable by the customer and a payment schedule.
- Delivery/performance timescales.
- Service levels/key performance indicators.
In addition, if there is anything in the MSA which a party wishes to vary or supplement for the purposes of a particular SOW (and the goods/services to be supplied pursuant to it) this can be done in the SOW. For example:
- The customer may require a separate liability cap for a particular risk relevant to the SOW.
- The supplier may wish to list sub-processors it uses to process personal data which it receives as a result of performance of the particular SOW.
- Where valuable intellectual property rights are being created via the performance of the SOW, this may need to be expressly acknowledged and ownership clearly set out.
Risks for all involved
The key for both parties is that the MSA is drafted to be suitable for the types of subsequent supply the parties intend and is detailed enough to avoid each SOW needing to include extensive non-deal specific detail.
It is also important to appreciate that an SOW is an important document, and one which it is important to review carefully to ensure that it reflects the agreed commercial terms, and when read alongside the MSA covers all required contractual provisions (and doesn’t unintentionally undermine any of the contractual provisions in the MSA).
Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
