What is a master services agreement for IT services?

Master services agreement (MSA on tech services) is a type of contract, under which the Customer orders, and the Company undertakes to provide information technology services (the “Services”) on the terms and conditions stipulated herein as well as in a respective Annex or SoW hereto (if any). 

The idea of the MSA is to settle all the rules and regulations for the legal relationship between two parties, where one party wants to order a software development, and the other one is willing to provide services as such. Of course, you don’t state all the laws and respective legislation requirements here, as they apply to this type of relationship by default. The MSA must contain the essence of arrangements and the description of rights and obligations of the parties. Is that enough? 

What is the structure of MSA (Master service agreement)?

The entire Contract may comprise the Master Agreement, Annexes and Statements of Work (SoW).

The Master Agreement contains general terms and conditions which govern mutual relations 

By adding various Annexes, parties may enter into more specific relations, e.g., outstaffing, software development etc. In this particular case, the Annex contains more specific terms and conditions with regards to the engagement of Contractors as outstaff personnel.

The SoW, in turn, is a document which formalizes an engagement of a particular Contractor, indicating their exact hourly rate, date of engagement, work schedule etc.

But, when we talk about the content of MSA, we should start with the definitions, as we have to state the main terms we will use in the agreement.

What are the terms (vocabulary) of MSA?

Let us define what will comprise the result of services under MSA. 

Deliverables shall mean the results of provision of the Services hereunder that may include without limitation software and/or any other parts (elements) of source and/or object code, objects of design, quality test reports, consulting and technical maintenance decisions etc. developed, created and/or provided by Company during the performance of this Agreement. The exact Deliverables may be specified for each Task assigned by the Customer.

Ok, let’s try to state it in plain language and with examples. 

Well, in plain words, the results of services are meant to be defined as the deliverables, but on the other hand, in case of dedicated team format of cooperation, the company may define deliverables as effective hours, during which the developers were available for the tasks, which may be provided by the Customer. 

Next concept that may be defined in MSA vocabulary may be a defect. It can be defined as follows:

Defect shall mean any deviation of the Deliverables from specifications stipulated in a respective Task or a bug that slows the user in achieving the expected result or prevents the user from achieving the expected result completely.

Here, again, we have to understand that when we work under the Time & material model or Dedicated team model, such definition of defect may not be used for some cases, as the nature of relationship between parties under such circumstances may be different. 

We may also define other terms, such as storage location (where the files shall be placed), System (where the tasks are provided). It is relevant for time & materials mechanics, for example. Also, the term “task” may be defined and so on. Actually, parties may define as many terms as they want, as long as it will be relevant and comfortable for them. 

What are the models of work under MSA?

Time & material (Agile one), Waterfall model (Milestones concept) and Dedicated team (outstaffing of the tech personnel) are the most widely used types of cooperation under the MSA. So, let’s take a look at the details of each of such models. Usually, the details of each model are defined in the respective annex. 

What is the Time & material model in software development agreement?

The way of engagement of the development team by constant iterations in order to keep the development on the track as it is needed and be able to change everything in any moment by inputting new user stories into the backlog. The idea of time & material format is flexibility and readiness for amendments of the tasks. 

Here the parties may define such concepts as Backlog, user story, iteration and so on. 

Also it is worth mentioning the way of pricing formation. For example parties may still try to use the cost-model based pricing for an one effective hour of the development. They may also define user story points as some kind of measure of the cost of the development. One task may have 6 user story points and other – 9 ones. The cost of each user story point may be defined and based on the quantity of such points, the Customer shall receive the respective invoice at the end of the month. 

As the Time & material model in the MSA means that the only permanent point is that all around constantly changes, there is no point to define the strict terms for every day basis work. Yet, the parties may define the crucial points like the way they count the pricing and the way the working process is built – where to upload the results and where the tasks are provided and agreed. 

What is the waterfall (milestones) model in software development agreement?

Going from one stage to the next is possible only after finishing the previous stage. It may be some kind of slogan for the waterfall (milestone) model. Here we have general technical tasks and stages, at the end of which, the respective milestones have to be reached. For example – in the stage C, the design of the web-site has to be absolutely ready and uploaded on the specific resource. 

Terms as follows may be defined in the waterfall model annex:

(a) Milestone shall mean each stage of the provision of the Services under this Annex.

(b) Deadline shall mean the cut-off date of the execution of each Milestone.

Each milestone shall be stated and the deliverables shall be defined. The scope of work for such milestones shall be stated in the respective SOW or appendixes. 

The financial model usually is connected to the milestones schedule. On the other hand, there still may be the monthly basis payments under condition that the development schedule goes well of course. 

What is the dedicated team (outstaff) model in software development agreement?

Here we talk about the details of involvement of the team of developers and assurance of their availability for the customer. We have to define the process of communication and order placement, same, as for provision of deliverables. For example we may state that particular tasks to be completed shall be agreed by Parties via the System. Where agreed by Parties, Customer and Contractors (this is how we call the involved developers) may communicate directly without involvement of the Company via the System.

One of the main disclaimers, or, key points, may be as follows: 

Customer is solely responsible for the Deliverables provided by Contractors. In no event, Company shall be liable for the Deliverables provided by Contractors. 

This main feature shows the difference between the outsource and outstaff / dedicated team mode.


Also, we should not forget about defining the engagement procedure. How is the specific developer agreed? How is his / her level determined? What, if the customer wants a substitute or to terminate the involvement? Well, it has to be defined in such an annex. 

Usually, the cooperation between Parties, using the MSA and respective outstaffing / dedicated team annex means a cost+ model. This is when the customer actually knows, who much the developers get and what is the budget, that is received by the company. Nevertheless, the cost model is defined, based on the cost of effective hours of the respective developer or other contractor and the sum of cost of respective effective hours forms the total monthly cost. 

Based on the stated above, is it okay for the client to pay for the available contractors in case, there was no need in their involvement and, respectfully – no tasks for them. Well, it has to be defined in the annex.  

How to develop a customized Master services agreement for the needs of an IT company?

The MSA, provided to the Client shows how seriously the IT company takes its own undertakings and if it has experience on the market. If the MSA draft really meets the business arrangements and fulfills the role of reliable instrument, the Client may sign it fast and the company will close the deal. 

The most important in making your own MSA is to put all the details of real mechanics of work and interaction on a paper and then formalize it in a smart manner for the Master services agreement to be comfortable and easy-readable, yet enforceable and strict. 

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