Benefits of using master services agreements for engineering projects
System integrators frequently ask automation and robotics practice attorneys to review a "master services agreement" (or MSA) by which several small integration projects or separate control system deliverables will be covered under one overarching legal agreement. Typically, the "business terms," such as the price, schedule, and scope of each project, are included in individual purchase orders (POs) or "scope of work" documents (SOWs) issued under the MSA, while the "legal framework" for all of the two companies’ interactions during the term of the MSA is covered in the MSA itself.
There are several business reasons to like MSAs, including they may create a long-term "sticky" relationship with a customer since a system integrator with a MSA will have less "ramp-up" time to take on new work for the customer compared to an automation vendor competitor that would need to negotiate a new contractual relationship with the customer. But MSAs have legal benefits, too. The following are a few benefits to consider when deciding about entering a MSA:
Sales and project support staff can concentrate on pricing and efficiency.
If the legal risks and protections of the parties have already been established in the MSA by the risk management and legal consultants, a system integrator’s staff can focus on areas within their expertise. POs and SOWs can be negotiated with little need for additional legal and risk management support. Legal terms, such as indemnity arrangements, intellectual property (IP) provisions, insurance requirements, warranties, dispute resolution procedures, etc., should only be in the MSA and not addressed in the POs or SOWs. The MSA should also have control over any conflicting or additional legal terms inserted into the PO or SOW.
Risk management terms can be addressed globally.
When a MSA is used, the customer and the automation vendor naturally will have a more "high-level" view of the parties’ overall business relationship. For example, if a separate agreement was used for each SOW, a limitation of liability provision capping an automation vendor’s risk to the contract price may not be reasonable or acceptable to its customer. If the overall MSA relationship is considered, there may be a greater opportunity to negotiate a maximum limit on the automation vendor’s risk exposure arising from its relationship with the customer.
Confidentiality provisions can cover project proposals.
Due to the nature of the control systems and integration market, confidentiality can be a key term for both parties. Worries regarding exposing sensitive information often arise well before the parties sign an agreement—typically in the early conceptualizing and estimating phase. Instead of requiring separate confidentiality agreements for each project discussion, a MSA can cover these types of "potential new work" exchanges of information.
MSAs are not appropriate in all circumstances. For large or complex projects, a SOW may be insufficient, and a "full project agreement" should be negotiated to address the unique aspects of the particular services and deliverables being provided. Likewise, if the marketplace has a lot of volatility, a long-term arrangement on terms such as pricing may not be advantageous. The next time a new customer or a new "routine-type" project comes in, however, companies may want to consider using a MSA.
Brian Clifford is a partner in the automation and robotics practice of Faegre Baker Daniels, a law firm in the U.S., U.K. and China. Edited by Mark T. Hoske, content manager, Control Engineering, CFE Media, firstname.lastname@example.org.
KEYWORDS: System integration, engineering projects, MSA
Master services agreements (MSAs) can benefit system integrators and their clients.
With other details settled, team members can focus on pricing and efficiency.
Confidentiality can include potential new work.
Would time savings gained through using an MSA for smaller system integration projects help?