Contracts are a big part of every entrepreneur’s journey. And in many situations, you’ll encounter MSAs and SOWs. If you’ve ever wondered exactly how they work or how to use them correctly, then this post is for you.
What is an MSA?
A master service agreement (or MSA for short) is a contract that governs the relationship between the parties. It will focus on the legal terms they each agree on, such as ownership of work product, confidentiality, etc. It also can sometimes include “default” rules around services and payments. However, MSAs usually don’t get into the project-specific details.
What is a SOW?
A statement of work (or SOW for short) is a contract that is governed by and usually incorporated into the MSA. Most SOWs don’t get into legal terms too much unless a particular, project-specific legal term is missing. Rather, SOWs focus on project-specific deal terms, such as what services are being performed, when they must be completed and how much the other party is paying for those services.
Benefits of using MSAs and SOWs
There are many benefits to using the MSA/SOW format. The biggest benefit is that after you sign an MSA, you then can sign one or more SOWs under that MSA very quickly without having to constantly revisit the legal terms. Instead, you can move quickly, knowing that the legal terms have remained the same for each new deal unless you’ve amended the MSA.
For contractors, getting an MSA established with a client can be a gateway to more work from the client. And for clients, knowing that you can engage a contractor quickly without a ton of additional legal work is a big plus.
Not surprisingly, entrepreneurs at all stages make mistakes with MSAs and SOWs all the time. Here are some practical tips to help you navigate this contract format.
For the MSA, make sure the agreement makes it clear that it is a master agreement and that the parties can sign SOWs under it. You should thoroughly outline as many legal terms as possible so you don’t have to revisit them later. And you should make it clear which document (the MSA or the SOW) will control if the terms in the SOW differ from the terms in the MSA. And last, you should state explicitly whether the parties can terminate individual SOWs without terminating the entire MSA.
For SOWs, you always should make sure the SOW explicitly refers to the MSA under which it is governed. It’s best to refer to the MSA title and also the MSA date (this is especially true if you’ve signed multiple MSAs with a client through many years).
Perhaps most importantly, before signing a SOW, you should always double-check to make sure the MSA has not expired. You should include project-specific service and payment terms in the SOW and also consider if there are any project-specific legal terms that you may need to include.
And last, if you need project-specific termination rights, consider adding those too.
Where to get an MSA and SOW
As with all contracts, there are many ways to obtain an MSA and SOW. The best approach is to engage a business attorney to create custom templates for your business. If that is not an option, then you can purchase one from a reputable legal website. You also can get templates for free from a colleague or online, but just remember: You get what you pay for!
This article is very general in nature and does not constitute legal advice. Readers with legal questions should consult with an attorney prior to making any legal decisions.
Chris Brown represents startups, freelancers, and small businesses through his law firm, Venture Legal. He also co-founded Contract Canvas, a digital contract platform for creative professionals. You can find him on Twitter @CSBCounsel.
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