Wednesday, January 18, 2017

Drafting IT Master Service Agreements

Correctly drafted MSA can be a sales tool. That’s because, when you present your MSA template to a potential client, they judge your company based on that contract. Will you treat them fairly or is the agreement too one-sided? If there are too many disclaimers and limitations of liability, then why is the company so worried about the quality of their work? If there is too much legalese, it’s not written in simple English, clients will wonder whether your work product will also be too convoluted and difficult for them to understand.

If, on the other hand, the MSA is drafted neatly, clients will tend to assume that your work will be neat as well. So, how to draft it neatly, fairly to all parties, while at the same time protecting yourself from unnecessary liability? A good MSA will have the following basic elements: SERVICES, PRICING, IP OWNERSHIP, LIABILITY, BOILERPLATE


- Scope of work included. Objective specifications, metrics, key performance indicators, service levels. Tip: specify which work is excluded.Scope of included work can be attached as a Statement of Work (SoW) to the MSA. This way the general general terms and conditions apply to all projects, whereas the SoW’s can be attached on an as‐needed basis. So that if there is additional work, parties don’t have to renegotiate a big contract again; they can just attach short new SoW’s to the MSA.
Additional services shall be billed at provider’s regular rates.

- Cooperation. Frequently, work stalls because client procrastinates in providing the necessary materials. Cooperation clause can include penalty for that (e.g. provider’s right to terminate contract early and keep the deposit).

- Service defects.

- Acceptance mechanism. E.g., work is deemed accepted if Client fails to reject it within a specified period. Client should  have to give written detailed reasons for any rejection.

- Term/Termination. Can parties terminate the agreement early, before the expiration of its term? Will there be a penalty for doing so? What are the consequences of termination; who gets to keep what?  The law gives both parties the right to terminate for a material breach, regardless of whether it is spelled out in the contract or not. However, it’s a good idea to state that a materially breaching party has a specified period (say, 15 or 30 days) to cure that breach.


- Provider’s right to update pricing (but not retroactively).

- Due dates 

- Late fees 


- Disclaimer of Warranty

- Limitation of Liability

- Liability for Errors and Omissions 

- Data breach, unscheduled downtime

- Force Majeur protects parties from unforeseen circumstances beyond their control.

- Regulatory Compliance. An easy way to appear more professional and safe would be to state that the provider is responsible for regulatory compliance of its work product. It’s required by law anyway.

- Data Privacy

- Confidentiality. Unilateral or mutual? Permitted use and disclosure. Consequences of a breach.

- Indemnification 

- Relationship of the Parties clause must clearly state that the parties are independent contractors, not partners or employer/employee.

- Non-Solicitation and Non-Circumvention clauses basically prohibit parties from stealing each other’s employees or customers.

- Liquidated Damages is a lump sum payment for breach of contract. In order for a liquidated damages clause to be valid, two conditions must be met: 1) the amount of the damages identified must roughly approximate the damages likely to fall upon you, and 2) the damages must be sufficiently uncertain at the time the contract is made.  In other words, liquidated damages must not be a penalty but an approximation of actual damages in situations when such actual damages could be difficult to calculate.

- Audit


Who will own the work product? Can provider use it, too?

Must address the ownership of any pre-existing work product that is Incorporated into the work product under the MSA.


Boiler plate terms such as governing law, dispute resolution (consider arbitration), severability, prevailing language, assignment, entire agreement, no third party rights, etc.