A Master Service Agreement (MSA) and a Statement of Work (SOW) are two important contracts your business needs if you work with vendors, contractors, agencies, or freelancers. Analyzing MSA vs SOW will help you understand the differences and similarities between these two documents, and the role each plays in contract management.
Read on to understand the differences and similarities between a Master Service Agreement and a Statement of Work, and which one to use in specific transactions.
An MSA defines the relationship between two parties in a service transaction. By providing the basic terms and conditions regulating the relationship between two parties, MSAs serve as a framework for future contracts between the parties.
When you have a long-term business relationship with another party instead of a one-off transaction, an MSA contract will help you both decide early on in the process the rights and responsibilities of each party in the transaction.
An MSA defines the nature of the relationship and eliminates the need to negotiate every contractual term in future transactions. It also offers companies the flexibility to quickly adapt to a continuously evolving business landscape. With an MSA, expectations are clear and future transactions can move speedily.
The terms of a Master Service Agreement include:
A Statement of Work , also called an SOW, specifies the details of a business transaction. An SOW is used to detail the scope of work, deliverables, and deadlines of a project.
You can use an SOW agreement as both a project and a contract management document. Businesses usually use SOWs when working with independent contractors or agencies to specify what they expect in each project.
Using an SOW clarifies the project goals, parties’ obligations and when they become due, and how the work should be performed. An SOW ensures there is no ambiguity.
SOW will have the following terms:
One difference between an MSA and an SOW is that they regulate different aspects of a business relationship. An MSA lays the legal framework for a business relationship, especially if it’s a long-term partnership or delivery of an ongoing service. An SOW contract deals with a specific transaction.
For instance, if your company engages a website design agency to build a website for your business, your MSA contract will define the terms of the partnership, providing for general terms, including confidentiality, warranties, and limitation of liability. It will also cover the handling of recurrent services like web hosting and website maintenance.
Your SOW, on the other hand, will regulate the specific transaction you contracted the agency for—in this example, building a website. Now, if your company wants to build a new business website later, you already have an MSA that has established the framework of your partnership, but you will need to draw up another SOW to govern the new project.
Also, MSAs and SOWs provide different levels of detail as to how a project will be done. An MSA doesn’t provide specific details about how the service will be provided, but an SOW contract will define—often in painstaking detail—how the parties will work together on the project.
Still using the website example, your MSA may merely state that your company is partnering with the web design agency to build and maintain your company’s website. However, your SOW will fully describe the type of website that will be built and when it will be ready.
So, the SOW may state details like:
In addition, your company will need both types of contracts in transactions with vendors, independent contractors, agencies, or freelancers. However, your company can also use an SOW internally as a project management tool to guide employees.
SOWs are critical in the performance stage of contract management. You’ll need to reference them several times to ensure that both you and the contracting parties perform your obligations.
Another difference between the two types of contracts is how they relate to themselves. MSAs and SOWs affect themselves differently. An MSA may have several SOWs under it. An SOW, however, usually depends on a single MSA. In other words, an SOW is a child document to an MSA.
If they conflict, the terms of an MSA will generally supersede that of an SOW—unless the parties agree and state otherwise. Also, parties can terminate an SOW without it affecting other SOWs and the MSA the terminated SOW is under.
Finally, your Legal team needs to be involved in creating and negotiating an MSA more than an SOW. Other departments with proper guidance can create and negotiate an SOW with minimal or no input from Legal.
Both MSAs and SOWs are used in regulating the relationship between parties in a service contract. In a typical service transaction, you’ll need to draw up both an MSA and an SOW.
Both documents help parties to define the rights and obligations they have to each other. Granted, an MSA and an SOW will cover different aspects of the service transaction. But, to define the expectations of contracting parties and to resolve disputes in a service transaction successfully, you may have to refer to both documents.
Another similarity between an MSA and an SOW is that they are both legally binding contractual documents. Although some people consider an SOW less of a legal working plan and more of a project management tool. Admittedly, an MSA will usually have more legalese than an SOW. However, the latter is still a contractual document, which means an SOW should be signed just like an MSA.
Signing an SOW makes it easy to hold everyone involved accountable and make everyone committed to the specifics of how the project will be completed.
Both MSAs and SOWs are used in service transaction contracts. The major difference between them is that, while an MSA sets the legal framework for the relationship between contracting parties, an SOW deals with specific projects or transactions.
Although the tech industry uses MSAs the most, these agreements are suitable for any ongoing, long-term business relationships between parties. An MSA removes the need to renegotiate terms in every new transaction and is the foundational agreement on which you build subsequent transactions.
An SOW contract complements an MSA and provides the details of each transaction. By relying on the framework already set by the MSA, an SOW can zero in on the specifics of each transaction—like the scope of work, deadlines, and deliverables. An SOW will also serve as a project management tool and help parties stay in sync during contract performance.
Evaluating MSA vs SOW shows the role these two contractual documents play in business relationships. Ironclad’s contract lifecycle management software helps businesses more efficiently create both MSAs and SOWs. To see how we can help streamline your contract management, request a demo today.
Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.
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