MSA Agreements in Software Development Outsourcing

Do you intend to engage with an outsourced provider on a long-term basis? If so, you might want to explore the benefits of a master service agreement (MSA). After completing your initial project and witnessing exceptional results, it's normal to want to continue collaborating with a skilled outsourcing vendor. You can efficiently expedite the development process for existing projects and future endeavors by developing an MSA.

In this blog, we will dig into the complexities of a master service agreement and discuss its importance when hiring offshore software engineers via outsourcing. We'll look at how an MSA may help you strengthen your connection with your vendor, clarify contract laws, and minimize the need for repeating documentation, saving both time and money.

At its core, an MSA is an IT service agreement between two or more parties (in the current case, your company and your outsourcing vendor) that lays down the terms and conditions to govern the current and future responsibilities and activities. The master service agreement will usually outline project responsibilities, roles, expectations, terms, provided services, and other critical agreements between your vendor and you.

Now that you know what an MSA is, you may wonder how it differs from a DPA, NDA, SOW, and other regular agreements. While this software services agreement is similar to most of them, the main difference is in the MSA’s purpose. An MSA can help IT vendors and clients work together more than once without having to go through paperwork and other agreement facets repetitively. Moreover, the MSA agreement allows both parties to conduct effective future planning and adapt to any business landscape change, highlighting the potential conflict or concern areas.

A master service agreement is an ideal choice for a long-term relationship requiring security and space to evolve. An MSA’s flexibility can help avert disputes and allow both parties to maintain the core relationship with changing circumstances and simultaneously save time and money. Businesses often use this IT service agreement when hiring dedicated developers from IT vendors as it eliminates the need to re-assess and re-negotiate already approved terms and conditions.

This software services agreement enables companies to rather focus on critical concerns like objects, goals, and timetables of other projects. Furthermore, an MSA also helps developers from the vendors, and their clients avoid potential legal action or contractual disputes. The agreement provides the terms in advance for the people responsible for unexpected expenditures, failures, or intellectual damage, consequently offering indemnification and guarantees for both sides.

The multiple types of agreements that an MSA can govern include:

• Royalties associated with discoveries or inventions
• Ownership of properties in a development
• How new information can be shared without breaching confidentiality agreements
• Alternative dispute resolutions and allocating attorney fees
• Indemnification during a third-party suit
• Work schedules dependent upon local work conditions
• Pricing variations and purchase orders are based on economic factors such as cost of living, material costs, etc.

In IT outsourcing, the vendor is typically the one writing the master service agreement, which they will provide to the client for review. This has become a standard practice in the industry as software companies specialize in the various nuances of project development. Moreover, if the vendor provides a complete documentation package, they can compile the MSA with other important agreements as a part of the package itself.

However, it’s not a rule set in stone for vendors to create the IT service agreement. For instance, you may want your customer’s team itself to write the MSA and send it over for examination. But, there is a high chance that this will result in a tedious revision process that stretches too long. On the other hand, having worked with multiple companies, an outsourcing vendor has more expertise in creating proper documentation and will make the entire process smoother.

There’s no hard-and-fast master service agreement template that all companies and vendors stick to. The MSA can contain various elements, but the core service agreement template must include compulsory pointers to ensure seamless governance of all project-related agreements.

Listed below are the mandatory points/areas your MSA must comprise.

The master service agreement must clearly state the person/team responsible for delivering and installing the service or product. Moreover, it should also mention who will be in charge if a particular part of the product/service isn’t up to the mark or something goes wrong.

“Provision of Services” section comes after MSA’s introduction section which includes the names, legal addresses, and official contact details of the involved parties. It is one of the crucial sections of an MSA agreement, the provision of services must include the following:

• Overall objectives and goals for future projects
• Services provided as the individual statement of work (SOW)
• Client’s expectations
• Fees, processes, and clauses associated with SOW changes or order adjustments
• Progress reporting regulations
• A clear account of the work model
• Working hours standards as per the time zone where the outsourcing vendor is located
• Rules and limitations for soliciting with other contractors while software development is in progress
• Independence guarantees for both the employer and outsourcing vendor

This section of the master service agreement cover the part of determining how an expense will be projected and how payment procurement and processing will occur. For payments, there are three main methods used in software development, listed below.

• Time and materials - This contract model is designed for flexible products with no identified scope yet. Here, the employer will cover the material costs and pay for the developers’ work hours.
• Fixed price method - This is the preferred payment method for projects containing detailed plans and approximate delivery dates. In this model, the actual payment depends on milestones, completed phases, or tasks, and can be paid as a one-time payment after the client accepts the product.
• Dedicated team model - This is the most ideal payment method for complex or multi-layered projects/products where the client can efficiently manage the primary development team. Here, the customer will pay monthly as per the outsourced developer’s hourly contribution.

The master service agreement will cover the acceptance procedure for provided services, causes for work rejection, or the demand for revisions, changes, modifications, etc. The taxes, fees, timesheets, and reasons for unplanned costs remunerations, along with payment processes, will come under this section.

A separate SOW - Statement of work - can include details about the involvement of the vendor and client in performance monitoring and operating processes. However, the master service agreement can contain information about the overall management framework for development, listing down the potential employees, background checks, and screening activities.

The master service agreement also includes the pre-determined duration of the client’s and developer’s partnership, apart from the deadlines and timeframes of individual projects. Furthermore, the agreement will describe the various clauses for premature contract termination, along with a renewal procedure if both parties opt to work together again.

The ‘insurance coverage’ section of the MSA agreement describes the exact members responsible for handling insurance acquisitions. It also states the penalties apply if the concerned member cannot acquire and maintain the pre-agreed insurance coverage.

This section of the master service agreement defines where the work will occur and who will be the person responsible for risk mitigation, along with local, federal, and state regulations compliance.

Plus, this section also includes liability limitations. Generally, both parties aren’t responsible for consequential or indirect damages, but if exceptions are made, then they’re required to be jotted down in the IT service agreement. The MSA also mentions the participating partners and employees assuming the risks for operational events that can potentially cause direct losses.

This MSA section describes which components of SOW projects are intellectual property and who retains copyrights, ownerships, and other related rights regarding the contract deliverables. Plus, it also states which materials or data must be given to the customer and which inventions, software, data, and technology - before or during the partnership - is to be owned by the software company.

There will always be data that becomes discoverable during the partnership. To protect this, the master service agreement must specifically mention what data or information is to be deemed confidential and cannot be disclosed to third parties or the public.

Both the company and the vendor must stay in proper contact during development. Hence, the MSA must mention the representatives of each party, along with their preferred communication tools, methods, locations for in-person meetings, and the procedures for receiving official notifications.

If either the client or the vendor fails to adhere to the terms laid down in the master service agreement, which results in a data breach, reputational harm, copyright infringement, or monetary losses, this section will explain how the responsible party will compensate such damages. Moreover, it must also contain the agreed exclusions from indemnities.

Apart from all the above-mentioned areas, the master service agreement can further comprise other miscellaneous sections, as considered necessary by the organization itself. These include:

• Governing laws and jurisdiction
• Data protection disclosure
• Rules for minor amendments to MSA documents
• Process for revising deliverables and pre-agreed review periods
• Clauses for the severability of the MSA’s provisions
• Arrangements for the product’s testing and post-production support

It is critical to manage intellectual property (IP) rights in software development in an MSA agreement. Important considerations include

• Ownership: Specify the ownership of produced software and associated intellectual property (IP).
• License grants: Specify the scope and restrictions of IP usage licenses provided.
• Confidentiality and nondisclosure: Keep confidential information and trade secrets private.
• Third-party IP: Address the usage of third-party intellectual property, including licensing and compliance.
• Inventions and improvements: During the project, determine ownership and rights for innovations.
• Indemnification: Establish protection against allegations of intellectual property infringement and allocate liabilities.

While the MSA’s meaning in business is quite significant, the agreement can involve certain issues due to various factors. Listed below are the most common risks associated with a master service agreement.

• Property damage - Any property damage that may occur during the partnership can cause a major debate about the loss caused.
• Failure to meet deadlines - Similar to almost everything in the business world, failing to meet deadlines can cause major disputes.
• Employee death or injury - While an employee’s injury or death is often unforeseen, it can still cause major debates regarding blame for the incident.
• Failure to pay as per agreement - The only thing worse than a missing deadline is a missing payment. Not paying as per the pre-agreed MSA terms can cause major disputes between the parties.
• Communication failure - Communication failure can often happen when project-related updates aren’t shared on time, leading to strong disputes.
• Service or performance issues - If the developed product doesn’t fulfill requirements or provide the desired results, a dispute may occur between both parties.
• Unauthorized charges - Much like payment issues, any sudden project-related charges can spark a quick dispute.

To avert all of the above-mentioned risks, the MSA service agreement must be well compiled, laying down every single term and condition that both parties must adhere to.

A thorough master service agreement can easily form the foundation for good business, allowing you to foster a long-lasting relationship with a suitable vendor for your outsourcing needs. This can help you effortlessly scale your team with developers, as and when needed, without going through paperwork hassles repeatedly.

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