Master Service Agreements (MSA's)
Often when companies are in a long term relationship and/or there are several projects contemplated the client will suggest a Master Service Agreement (“MSA”) be agreed. The MSA usually provides general terms under which your contractual relationship will operate. For example, it could deal with issues like standard of performance, payment, indemnities, insurance, law and jurisdiction, confidentiality, termination and dispute resolution. It probably will not set out the work you will be undertaking. You will have separate negotiations and agreements (work orders) for each individual project with that client. If there is any clash between the project specific agreement and the MSA, it is usual for the MSA to take precedence unless specifically agreed otherwise.
ITIC dealt with a matter whereby a US subsidiary of a UK company (the Contractor) signed a MSA with a US based client (the Client) which bound the entire Contractor company including all “subsidiary and affiliated companies”.
This meant that all offices worldwide (including the UK head office), were bound by the terms agreed in the MSA. These included provisions for US jurisdiction, unlimited liability and that the terms of the MSA would take precedence over any subsequent verbal or written work orders.
The claim against the member involved an overseas affiliated company of the Contractor who had entered into a transaction with the Client. The overseas affiliate had no knowledge of the MSA and provided a quotation which, they believed, was subject to their own standard trading conditions. These trading conditions limited their liability to US$ 1 million and provided that any dispute would be subject to English law and jurisdiction.
When a dispute arose, the MSA’s existence was revealed when the overseas affiliate suddenly found themselves named as a defendant in US proceedings, in which the Client was claiming more than US$ 45 million in damages. This was a shock to the overseas affiliate as they had never seen the MSA, didn’t agree to its terms and did not even know it existed at all.
In fact, the MSA had come into existence before this particular overseas affiliate had even been incorporated.
Furthermore, the US subsidiary who had actually signed the MSA a number of years previously were also surprised to be named in the claim, as this was the first they knew about the job that was undertaken for the Client by the overseas affiliate.
The claim was eventually settled for far less than the original claimed amount, but for a sum well in excess of the US$ 1million limit of liability the overseas affiliate had originally thought was in place.
The main points to consider when dealing with MSA’s are:
1. If you are asked to sign an MSA you must always:
(a) read it carefully and fully understand which companies and offices in your group you are potentially binding; and
(b) remember that such an agreement does not have to be signed by the parent company or head office in order for it to be binding on all your offices, subsidiaries and affiliated companies. Your client will probably be unfamiliar with your organisation’s corporate structure and will probably be entitled to rely on the apparent authority of the office or company that has signed the agreement.
2. Once you have signed such an agreement it is imperative that all those bound by it are notified and made aware of its terms so that they can act accordingly.