Okay, so what are the key elements of an MSA? We collaborated with corporate/commercial lawyer John Whyte to simplify it down to a checklist. Your MSA should always cover (at least) these 7 things: scope of work, payment terms, intellectual property, confidential information, risk allocation, dispute resolution and termination. For your MSA to be effective, these sections should not just be present, but clear and precise.
Before delving into the deep end of MSAs, learn more about the basics. Check out our blog posts on MSA 101 and our comprehensive guide to everything MSAs should cover.
Let’s take a closer look:
- Scope of Work: The Blueprint of Your Project
The Scope of Work is the foundation of any MSA. It’s where you detail the services that will be performed, the responsibilities of each party, the deliverables, and the timeline for completion.
Think of it as a roadmap for the project. It should be comprehensive and clear, leaving no room for ambiguity. It ensures that everyone is on the same page from the get-go, reducing the risk of scope creep and ensuring that the project stays on track. Some Scopes may include key performance indicators, or KPIs, quantifiable measurements over the course of execution that track the performance of the parties to ensure deliverables are completed both pursuant to the Scope and within stipulated timelines.
- Payment Terms: The Financial Framework
Money talks, and in an MSA it needs to speak clearly. Payment terms outline what will be paid, how much, and when, and may or may not be tied to KPIs. This section should cover pricing models (fixed fee, time and materials, etc.), invoicing schedules, payment deadlines, and any late payment implications.
It’s also wise to discuss expenses and whether they are included in the pricing or billed separately. Clear payment terms help maintain a healthy business relationship by setting expectations and ensuring financial transparency.
- Intellectual Property: Who Owns What?
Intellectual property (IP) is the foundation of creative and technical projects. The MSA must specify who owns the IP created during the project. Will it be the service provider, the client, or will there be a shared ownership model?
This section should also cover the use of pre-existing IP and how it can be utilized within the project. Defining IP ownership upfront avoids legal headaches down the line and ensures that both parties feel their assets are protected.
- Confidential Information: Securing Secrets
During a project, sensitive information is often exchanged. The MSA should define what constitutes confidential or personal information and outline the obligations for its protection.
This includes how the information can be used, who can access it, and the procedures for handling it both during and after the project’s completion. A robust confidentiality clause builds trust and ensures that trade secrets and personal data remain secure.
- Risk Allocation: Thinking Ahead
Every good MSA must have robust provisions addressing risk allocation as agreed between the parties so that each party understands the relative risks going into the venture and is comfortable with how they are being addressed. These provisions include liability limitations, respective indemnities, applicable insurance and perhaps liquidated damage provisions.
Risk may also be addressed in certain representations and warranties, as well as performance warranties once the proposed work is completed. These are essential provisions of any MSA and ensure risks are addressed in a mutually satisfactory manner.
- Dispute Resolution: Navigating Rough Waters
Even with the best intentions, disputes can arise. The MSA should have a clear dispute resolution process to address disagreements without resorting to litigation, if possible. This could include negotiation, mediation, or arbitration, often escalating in that order.
By establishing a dispute resolution mechanism, both parties agree to a structured approach to resolving conflicts, which can save time, money, and preserve business relationships.
- Termination: The Exit Strategy
All good things come to an end, business engagements included. The termination clause outlines how the relationship can be ended, whether it’s the natural conclusion of the project or an early termination due to a breach of obligations. This section should specify notice periods, the process for winding down the project, and any penalties or obligations upon termination. A clear termination clause provides a clean break or an orderly conclusion, protecting both parties’ interests.
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