The Master Services Agreement (MSA) and Statement of Work (SOW) are two of the most common contracts that modern businesses use to buy and sell services. Both are important documents for ensuring expectations are met and relationships run smoothly.
But MSAs and SOWs aren’t quite the same. There are a few important differences between the two types of contracts that you’ll need to know when drafting them.
Fortunately, you’re in the right place. This post explains how MSAs and SOWs compare.
What is a Master Services Agreement (MSA)?
A Master Services Agreement is a contract between two or more parties that establishes the broad terms of their relationship.
Unlike some other business contracts, a Master Services Agreement doesn’t go into detail about a specific product or service that’s being delivered. Instead, an MSA lays out the terms of (hopefully) long-term relationship.
These terms are then used as a framework to ensure that future deals between the parties run smoothly.
A Master Services Agreement is also useful since it helps to make sure that future contracts, like a Statement of Work, can be agreed quickly and easily. This is because big decisions about how the relationship will work have been established already.
To find out more about what an MSA is and what one looks like, check out our free Master Services Agreement template. Otherwise, keep reading to find out how an MSA compares to an SOW.
What is a Statement of Work (SOW)?
A Statement of Work is a legally binding document that establishes the specific details of a project and the contractual obligations it involves.
For example, a Statement of Work will describe the exact responsibilities involved in a project or transaction. It will also cover everything parties need to know to complete it successfully, from timelines to deliverables and even exact costs.
They are created on a per-project basis and parties can create multiple SOWs in their time working together - each for a different project.
Now we know what Master Services Agreements and Statements of Work are, let’s compare the two types of agreement.
What is the difference between an MSA and an SOW?
MSAs and SOWs are both types of service agreements. But there are few, significant differences between the two types of contract. Let’s cover these differences now.
1. The purpose of the agreement
One of the biggest differences between a Master Services Agreement and a Statement of Work is the purpose of the agreements.
The main purpose of an MSA is to establish clear expectations about how the parties will work together in the future.
It’s used to make sure that the parties are on the same page about what this relationship will look like, which makes it easier to negotiate contracts later down the line.
Meanwhile, the main purpose of a Statement of Work is used to capture all of the specific details about a project. Rather than covering what a long-term commercial relationship will look like, an SOW focuses on what a specific transaction will involve and who is responsible for which tasks.
2. What the agreement will cover
Since MSAs and SOWs perform different purposes, they also include different information within them.
For example, a Master Services Agreement might establish rules around payment, intellectual property rights, exclusivity, dispute resolution, and so on. This is all basic information that will shape the way future agreements are made and governed.
But a Statement of Work is much more detailed. It typically covers the specific deliverables that a project involves, who will be responsible for which individual tasks, when the work must be completed by and specific criteria about the goods or services being purchased.
3. How long the agreement lasts
Another difference between an MSA and SOW is how long each agreement tends to last.
Since a Master Services Agreement is created to govern long-term relationships, this type of commercial contract tends to have a longer contract duration than a Statement of Work.
This is because a Statement of Work will usually only be valid for the duration of a specific project. After this, it’s usually discharged through performance. But an MSA will continue in the background before and after these SOWs have been created.
Which type of agreement do you need?
As we’ve just discussed, both MSAs and SOWs perform different purposes and have different advantages. This means that they tend to be used alongside each other for the best results.
Of course, it is possible to create one without the other. For example, you can create a Statement of Work without first signing a Master Services Agreement.
However, if you do have an MSA in place beforehand, this can make negotiating the terms of future SOWs much easier.
MSA vs SOW: what happens if the terms conflict?
The only problem with using both a Master Services Agreement and a Statement of Work is that the terms within them might conflict. For example, the payment terms you included in your MSA might differ compared to the ones you’ve included in your SOW.
What happens then? Well, it’s not a problem if you know which agreement will supersede the other. Deciding on this beforehand can be useful for avoiding contractual disputes.
Generally, a Master Services Agreement will overrule a Statement of Work if the two documents include conflicting information. This is because the MSA tends to be understood as the parent contract as it sets the tone for the entire relationship, while an SOW only governs individual transactions.
But this can vary depending on what the conflict involves and what the documents actually say, so it’s always best to check with a lawyer or attorney if you’re unsure.
Need help managing MSAs and SOWs?
There are a few simple things you can do to make managing your MSAs and SOWs easier.
For a start, you can ensure that the contracts are drafted effectively and that the links between the two types of contracts are clear.
One way to do this is to explain how the MSA will be used to form and negotiate SOWs in the future. You can also refer to your MSA within your SOW. Clearing up these small details is a great way to reduce risk in your contracts and make your expectations clear.
But that isn’t the only way you can make managing contracts easier. You can also automate them using Juro.
Juro is the all-in-one contract automation platform that enables all teams to streamline the creation, execution and management of routine contracts at scale. Juro users can:
- Initiate simple contracts from templates pre-defined by legal users
- Process complex documents end-to-end through approval, negotiation and signature workflows
- Keep a system of record for agreements and the contract data they contain
To find out more about how Juro can help your business to reduce contract admin and manage your contract workflow, fill in the form below.