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September 29, 2008

Master Services Agreement (Part 1)

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Obie

In the months since delivering my Hustle talk at RubyFringe at least a few dozen people have emailed me asking for a copy of Hashrocket's Master Services Agreement (MSA). I consider it a competitive advantage to use a strong MSA and I'm not inclined to just give that document to anyone. However, based on the obvious interest level, I think it's worthwhile to discuss what goes into an MSA so that you can craft one for yourself with the help of your own legal counsel.

This is the first post in a probably-long series where I will go section by section into what I believe constitutes a strong MSA that protects the vital interests of both parties to a software consulting relationship.The intended audience of this series is people running their own Rails consultancies or working as independent contractors, although of course you could generalize the principles given in the series to software consultancy in general.

Why am I doing this? I strongly believe that it's good for the community to base their contracts on terms that are favorable to both parties while protecting consultants from abuse. I've found that the majority of clients act in good faith at all times, but ocassionally you will run into problems that send you scrambling for legal advice. The proper time to worry about whether your interests are protected are prior to entering into a contract, not when you run into trouble.

Just to be clear, I stress the following: I am not a lawyer and strongly advise you to engage your own legal counsel in a dialogue about the use of an MSA and how it specifically applies to your business, especially in countries other than the USA.

The Purpose of a Master Services Agreement

An MSA document lays the contractual groundwork for a consulting relationship that is expected to last for more than one engagement. You don't go ahead and do work based solely on an MSA; it requires addendum documents in the form of "Statement of Work" (SOW) exhibits that define the scope and term of a particular engagement. I prefer so-called "Time and Materials" (T&M) engagements, and with a good MSA you can usually fit your SOW onto one page. (Fixed-bid or scope-based SOWs will generally need to be quite a bit longer than one page, since they must detail the scope on which agreement is based. I'll go into the topic of SOWs in detail later in the series.)

As I mentioned in my Hustle talk, once you have a signed MSA in hand, you have created a client relationship where before there was none. And once you're in a client relationship, in my opinion you are in a much friendlier and more cooperative situation for negotiating contractual work. Later, the benefits of an MSA really start to shine brightly as you gain the client's trust and negotiate follow-on work, since they allow you to keep your SOWs small and easy to understand for all parties.

That said, let's proceed with how an MSA document is structured. I'll leave references to Hashrocket in place, but fields that should be filled for each client are identified like [this].

Preamble

The MSA document should be drafted on company letterhead, so the first item on the first page is your company logo, followed by the title MASTER SERVICES AGREEMENT.

The first paragraph identifies the document and a few key terms, as follows:

This Master Services Agreement (“Agreement”) dated [date of the agreement] is made between Hashrocket, Inc., a Florida corporation with its principal place of business at 60 Ocean Boulevard, Suite 11, Atlantic Beach FL, 32233 (“Hashrocket”) and [Client Company Name] a [State] [company type, i.e. LLC], having offices at [Address] (“Client”).

Simple enough so far. The next few paragraphs go under a heading of RECITALS:

RECITALS

WHEREAS, Hashrocket is in the business of computer software consulting and development services.

WHEREAS, Client desires to engage Hashrocket to provide software consulting and development services, and Hashrocket agrees to perform such services, on the terms and conditions set forth herein.

WHEREAS, Hashrocket and Client agree that this Agreement shall apply to all such future services.

Again, simple stuff, although we start getting into some legalese with this "whereas" stuff. The terminology "Computer software consulting and development services" is probably something that you should think about customizing to communicate exactly what you see your firm as providing.

Finally, you finish off with a paragraph under the heading of AGREEMENT, where the legalese starts to get a bit heavier:

AGREEMENT

THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

Section 1: Services

As I said before, the MSA doesn't specify the work to be performed, that's what SOW documents are for. Therefore, Section 1 lays out the rules for describing the services in SOW documents. Since the identity of your client is established in the beginning of the preamble, it is sufficient to refer to them as Client in the rest of the document.

Hashrocket agrees to perform services for Client as described in one or more Statements of Work, the form of which is attached hereto as Exhibit A (the “Services”). Any conflict or inconsistency between the provisions of this Agreement and any executed Statement of Work shall be resolved by giving precedence to the executed Statement of Work under which the Services are to be performed and then to this Agreement.

Note that precedence is given to the SOW over the MSA. The reason is that the MSA is considered the more general document. Although you'll put information in it about things like invoicing and payment schedules, there are usually items in the SOW that are more specific or outright changes from the general rules of the MSA.


That's it for now. If you're not already subscribed to my blog, now might be a good time to do so. I will publish the remainder of the series over the course of the next couple of months.


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