Distinguishing between a Master Service Agreement and a Statement of Works

Written contracts are a key contributor to the smooth operation of commercial relationships between parties. Well-drafted agreements seek to clearly set out the obligations on each party and protect the interests of those involved.

Common forms of structuring a project agreement include Master Service Agreements (“MSA”) or Statements of Work (“SoW”). An understanding of how these agreements differ is vital for businesses to ensure they choose the appropriate form to govern their contractual relationships. This article provides an insight into both types of agreements and the key considerations for businesses when choosing the best structure.

Master Service Agreement

Simply, an MSA outlines the broad terms and conditions that will govern the relationship between the parties. These contracts are usually used for long term contractual relationships, where multiple services or projects are to be provided by the supplier. There are a number of benefits to entering into an MSA which include:

• Acting as an overarching umbrella document, setting out the terms and conditions to generally apply across a variety of different forecasted projects or types of services
• Simplified process for the negotiation of future projects or services that are provided
• If used effectively, it can reduce the cost and time spent on administrative and legal costs.

Certain provisions within an MSA are important for both the supplier and customer to consider, these being:

• The scope of services to be provided to ensure that that both parties understand the work that will be delivered under the agreement and the relevant timelines
• How and when payments will take place
• The process to be followed should the agreement need to be terminated
• Confidentiality provisions which will protect the intellectual property of the parties from being disclosed to third parties.

Statement of Work

A SoW is used to set out specific services or project level terms whilst also incorporating more general legal terms and conditions found within the MSA. It is important when preparing a SoW that the document is clear, accurate and detailed to avoid any potential dispute.

Key procedural provisions will concentrate on how to amend the services or the project if needed and the effect of this on the price and timelines. In addition, a clearly defined scope of the services or project is vital so the parties understand the deliverables and responsibilities of both parties. A benefit of using a SoW is the ability to customise it for each project or service being offered, while maintaining the overarching legal terms within the MSA.

MSA vs SoW

Usually, an SoW provides the service or project specific terms while the MSA governs the wider relationship and general legal terms and conditions between the parties. The timelines for the different agreements do differ, with an SoW often covering the short-term project specific relations.

It can be challenging to determine which type of agreement is the most suitable, however:

Use an MSA where:

• There is an intention for a long term relationship between parties
• There is likely to be a number of different services offered or individual projects
• The parties wish to reduce the administrative burden when it comes to contracting with each other.

Use an SoW where:

• There are specific services or projects where the deliverables, timelines and responsibilities of each party can be clearly set out or where these details are required to ensure the smooth running of the services or project.

Understanding whether an MSA or SoW is the most suitable agreement to enter into and ensure effective management of the contracts a business has in place is crucial to the success of client relationships and successful projects.