The MSA & SOW contract format is powerful. Here’s why and how to use them.
Many Kansas City startups, freelancers, and small business use MSAs and SOWs because they are efficient.
Below is a recap on 1. What they are. 2. Why you should care. And 3. Best practices you might implement.
1. What is the MSA/SOW format?
MSA stands for Master Service Agreement, while SOW stands for Statement of Work.
The idea is that you use one master agreement to establish the legal terms between the parties and then one or more statements of work to agree on project-specific services and payment terms. Each SOW is then attached to and governed by the MSA.
2. What are the benefits of using MSAs and SOWs?
There are many benefits to using MSAs and SOWs, and most of them revolve around efficiency.
Here are some of the key advantages:
- Once the MSA is signed, the parties can use it for years without having to continuously renegotiate the legal terms.
- With the legal terms established, the parties can quickly negotiate individual SOWs that focus on project-specific services and payment terms. Sometimes, you can even negotiate and execute them without additional legal review.
- If permitted in the terms, a party can terminate one SOW without terminating other SOWs (which is useful when you are working on multiple, independent, projects).
3. Best practices when using MSAs and SOWs.
MSAs and SOWs make things easy. But only if you do things right.
At the outset, you should create a good MSA/SOW template for your business. You can create this yourself, get help from an attorney, or possibly purchase one from a trade association or other resource (we even have some in our Contract Shop).
From there, here are some tips you might consider for each of the documents:
- Explicitly reference in your MSA that SOWs will be used.
- Define the term (the length) of the MSA and include renewal provisions if applicable. (We often include a clause that automatically extends the term past its original expiration if there are open SOWs.)
- Cover all relevant legal issues in the MSA (for example default invoice/payment terms, ownership of intellectual property, non-disclosure obligations, etc.)
- Make it clear which document (the MSA or the SOW) will control if there are conflicting terms between the two documents.
- Make the termination rights clear in the MSA (sometimes a party can terminate just one SOW, other times it must be all or none).
- Include in each SOW an explicit reference to the MSA to which it will be attached.
- Number each SOW, either sequently or using some other unique numbering system to make it easy to refer back to that specific SOW.
- Cleary outline each party’s obligations (payment, delivery, services, etc.).
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*This article is very general in nature and does not constitute legal advice.