A master services agreement is an overarching contract that governs all work a supplier will perform for a client. It's most commonly used when the two parties intend to have an ongoing arrangement with multiple individual jobs. The specifics for each job will be covered in another document.
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A master services agreement brings several benefits. Firstly, it saves time and effort in repeatedly negotiating the grounds on which the two parties will work whenever they arrange a job. Secondly, it forces the two parties to think carefully about the working relationship and to spot any potential problems or disagreements. Finally, the agreement helps establish trust in a professional relationship from the outset and the effort involved helps show commitment to ongoing business dealings.
The master services agreement contains details of legal points that will apply to all jobs the service provider carries out for the client. Exactly what this covers will vary depending on the organisations and the type of work. Common examples include the intellectual property rights for anything created during the work; penalty clauses for late delivery; whether the provider is allowed to subcontract work; and how disputes will be settled, for example through mandatory arbitration before court action.
Statement of work
Where two firms use a master services agreement, they will also have individual contract documents for each project. These are commonly referred to as a statement of work. The documents will cover the specifics of the job, such as what will be delivered, the due date and the agreed price. A statement of work also details any exceptions that override the master services agreement; for example, a higher penalty clause for late delivery on a particularly time-sensitive project.
The master services agreement could be confused with a memorandum of understanding and a memorandum of agreement. In a similar way to the master services agreement and statement of work set-up, a memorandum of understanding deals with the general business relationship between two parties, while a memorandum of agreement deals with a specific job or project. The big difference is that the memorandum of understanding and memorandum of agreement are not usually intended to be legally binding and instead are simply a written record designed to avoid confusion. A master services agreement and a statement of work are both designed as legally binding contracts.
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