Briefly

TRANSCRIPT

00:08
Adam Stofsky
David, I want to ask you about a specific kind of contract that I see all the time. What is a master, like a master agreement or a master services agreement. Can you explain what that is and why it's important?

00:22
David Tollen
Yeah, it's not a very technical term, so it doesn't. It can refer to whatever you want it to be. But people usually use the term Master Services Agreement or sometimes just master agreement to refer to a contract that has the option to buy lots of different things at different times. So say the customer is buying some kind of services from the vendor, like consulting services or gardening services. It could be anything. They would. They would negotiate an msa, a Master Services agreement, and they get most of their basic terms down that are sort of going to be the same for every project. They'll agree on things like warranties and indemnities and all kinds of other stuff, and then they'll have attached to the contract a form, a statement of work form, for instance, or an order form.

01:18
David Tollen
And every time they want to order a new product or service, MSA usually means services, but not necessarily every time they want to order a new product or service, they just fill out another one. So it allows them to do multiple deals, possibly extending far into the future without renegotiating most of the terms. All they've got to put on that statement of work order form is the specifics of this particular project, and all the warranties and the other legal terms, quote, unquote, are already there.

01:49
Adam Stofsky
So is it basically a tool of efficiency? So both on the sort of the procurement side and the selling side, you don't want to negotiate an entirely new contract for every bit of business. If you're going to be doing a lot of business with another company, is that really why they exist?

02:05
David Tollen
It is a tool of efficiency and it makes it much easier to just keep doing business. So all the expense and time necessary to negotiate most of the terms just happens one time. So for each new project, maybe you're negotiating price and timing and stuff like that, at least in theory. You don't have to renegotiate most of the terms. There's actually an odd thing that people sometimes do. There's a. There's an interesting debate about MSA terms that can interfere with the efficiency and create some risks. Sometimes people put in a clause in a Master Services agreement. Usually people put in a clause that says if there's a conflict between the terms in the order form or statement of work and the terms in the main body, the master agreement, there's usually A clause that says, which governs.

02:59
David Tollen
The interesting thing that I think sometimes can reduce the efficiency is a lot of times people want to say the order, form or statement of work governs over the master. The problem is, if you do that, you can undo all the work that went into negotiating the master. You know, someone down the road, people are not paying as much attention. You know, two years in the future when you're. When you're negotiating statements of work, someone slips in a new warranty or indemnity or limit of liability or something that you spend a lot of time negotiating and nobody really pays enough attention and you. You change it. So I actually recommend usually that you have terms that say the master overrides statements of worker orders if they're inconsistent, because to me, that efficiency you're talking about is increased by doing it that way.

03:54
Adam Stofsky
Are there any other pitfalls with MSAs? What should you be looking for or concerned about when negotiating these?

04:02
David Tollen
So one of the pitfalls I think people run into relatively often is that they create an MSA that's meant for one type of product or service, then they kind of get careless and they use it for others. So technically speaking, MSA Master Services Agreement, you should just be buying services, professional services by a person. But people sort of recognize they've got this nice vehicle for doing business and they start buying other things. They start buying products. They buy computers or software or equipment or vehicles or pencils, whatever it might be. And the problem there is they negotiated terms that deal with services like, you know, warranties about how quality of, you know, human services and their training. And they've negotiated a lot of terms that are appropriate for services.

04:58
David Tollen
And now they've got all these products and they don't have, you know, product warranties and all the other things you'd want for products. Or they negotiate terms about a particular narrow type of services. Like, you know, we often see a Master Services Agreement used to buy things like office supplies, and then they want to buy software on it, and the terms don't work very well. And that's a way that MSAs people take the wonderful flexibility of that vehicle and they screw it up so that they have contracts that don't work very well.

05:32
Adam Stofsky
Interesting. So you mentioned the sort of order. I think we use an order form, whatever you call it.

05:39
David Tollen
Right.

05:40
Adam Stofsky
It can be called different things. But this is where you actually just specify what you're buying or selling under the msa, right?

05:47
David Tollen
Yeah.

05:48
Adam Stofsky
Do you need a lawyer to fill out those order forms?

05:52
David Tollen
You shouldn't. I mean, you know the way I'd put it is you actually never need a lawyer. A lawyer can help you. Contracts are written in English and you know thoughtful, smart person who's good with language can handle them but lawyers tend to be able to do it better and are much more trained. Although plenty of you know contract managers, non attorneys are extremely highly trained. But the but say you are using lawyers or very expert contract managers or whatever you might use those people to negotiate and draft the main body with the hope that they don't have to get back involved. Every time you fill out an order form or a statement of work you ideally create a sort of inflexible form, fill out these blanks and you've got a new project under this master services agreement.

06:43
David Tollen
And if it works well yeah, the salespeople, business people, whoever it is doing doing the work can do it with little or no legal department supervision.

06:54
Adam Stofsky
All right, great. Thank you David.

06:57
‍David Tollen
Thank. You.