What is a master services agreement?

Why the split exists at all

Negotiating liability, indemnities and intellectual property takes lawyers on both sides and several rounds. Doing that once, at the start of a relationship, and then adding projects on two pages each is the entire economic argument for the structure. It also produces consistency: every project inherits the same insurance requirements and the same liability position, so nobody has to remember which of nine engagements has an unusual clause hidden in it. The cost is upfront and real. A first engagement worth fifteen thousand dollars does not justify six weeks of negotiation, which is why suppliers usually offer a shorter service agreement for one off work and propose a master agreement once the relationship looks likely to continue.

The liability cap, which is where the argument is

Almost every negotiation concentrates here. A supplier wants the cap set at the fees paid, often for the preceding twelve months, so exposure is proportionate to revenue. A client wants a multiple of fees, or an uncapped position for certain categories. The categories are the real negotiation: death and personal injury, fraud, breach of confidentiality and intellectual property infringement are commonly carved out of the cap, and consequential loss is commonly excluded altogether. What matters more than the number is whether both sides understand what is inside and outside it, because a cap of one times fees with four uncapped carve outs is not a cap of one times fees in any meaningful sense.

Intellectual property, and the licence back

Clients generally want to own what they paid for, which is reasonable for the bespoke output. Suppliers need to keep using their own tools, libraries, frameworks and methods, which is equally reasonable and is what makes them efficient. The workable position assigns the deliverables to the client and reserves the supplier's pre existing and general materials, with a licence to the client to use those materials as part of the deliverable. Write out what counts as pre existing, since a clause that reserves everything the supplier has ever thought of will not be accepted, and one that assigns everything makes the supplier's next project harder. Open source components need their own sentence.

The order of precedence clause

Both documents will eventually say something about the same subject, and the pair has to state which wins. The standard arrangement is that the master agreement governs except where a project document expressly says otherwise for that project and refers to the clause it is displacing. That last requirement is the important half. Without it, a well meaning sentence in a project document can override a negotiated liability cap by accident, and nobody discovers it until the claim arrives. Say it in one clause near the front, and train whoever writes the project documents to flag any departure rather than drafting around it quietly.

Reviewing one that is already in place

An agreement signed five years ago is governing new work under conditions neither party would agree to today. Insurance limits that were adequate then may not be. Data protection obligations have changed. The liability cap sits against a revenue relationship that may have grown tenfold. Give the agreement a term with a renewal mechanism rather than letting it run indefinitely, and diarise a review whenever the relationship materially changes shape. The review is also the moment to check whether the project documents actually issued under it match the template, since drift between what was signed and what is being used is common and is only visible when somebody looks.

What to do when a client will not sign one

Some clients have no mechanism for framework agreements, particularly smaller businesses and some public bodies that contract project by project. Pushing does not help. The practical alternative is a service agreement covering the same ground for a single engagement, drafted from the master template so the clauses are familiar, with the scope folded in rather than referenced. It is longer than a project document and shorter than a negotiation from scratch. Where several such engagements follow, propose the framework again once the relationship is established, because the argument is much easier to make with three completed projects behind it than with a proposal on the table. Keep a note of which clauses were accepted each time, since that record is what makes the eventual negotiation short.

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