By: Maks Ewendt
The inclusion of “Master” in front of any and every agreement type seems to have become habitual and interchangeable when discussing legal agreement needs. Of note, Master is the “M” in an MSA. That “M” may also come up in a Master Development Agreement, Master Reseller Agreement, Master Goods Agreement and others. If you can think of an agreement type, there’s probably a Master version out there. While they are commonly used and accepted by businesses, there are a few key distinctions you may want to consider when asking “Does my business need a Master [X] Agreement?
What Does the “Master” Designation Mean?
Multiple anticipated agreements, each with legal terms that will be repeated across several contracts, are consolidated into one agreement. The terms of the Master [X] Agreement will govern most, if not all, of the business transactions between the parties of the agreement. All business terms (e.g. scopes of work, compensation, timelines) are excluded from the agreement and it’s noted that they will be addressed at a later time when and as projects arise. All such projects will simply refer back to the terms of the Master [X] Agreement rather than repeating the same terms each time.
How Does a Master [X] Agreement Work?
By dividing and consolidating. I break down just about any contract into three main components: (i) business terms; (ii) additional obligations; and (iii) standard terms (you can read more about these here). While the business terms are always the most fun part of an agreement, a Master [X] Agreement acknowledges that there will be business terms in the future, but punts on specifying what those terms actually are to a Statement of Work (SOW) or Task Order to be executed at a later date (sometimes the first SOW or Task Order is included at the time of the Master [X] Agreement’s negotiation). With those business terms out of the way, the Master [X] Agreement focuses solely on additional obligations and standard terms so that when a business need arises, those clauses have already been taken care of, leaving just the business terms to include the SOW or Task Order for that particular engagement. A Master [X] Agreement also stipulates how those SOWs or Task Orders can and should be initiated between the parties.
When Should My Business Use Master [X] Agreements?
The only time the juice of a Master [X] Agreement is worth the squeeze is if the parties are contemplating multiple similar engagements with each other in the foreseeable future. If your business is providing or sourcing a one-time, limited, or unique engagement, you can cut to the chase and address all of your needs in an [X] Agreement, without worrying about the downsides of a Master [X] Agreement.
Are There Downsides to a Master [X] Agreement?
In a word, yes. Logic does seem to follow that if having a [X] Agreement is good, then having a Master [X] Agreement should be better. However, lets look at some hurdles that having a Master [X] Agreement adds to just an [X] Agreement:
- Scrutiny: Master [X] agreements should govern all business transactions between the parties. Therefore, while it may differ between organizations, Master [X] Agreements usually require a higher authority for approval than an individual [X] Agreement, since the Master version may impact other departments and business dealings. While a Manager or Department Head may be able to negotiate and enter into an isolated Services or Reseller Agreement that only affects their business unit, the inclusion of “Master” may automatically trigger the review by the C suite or General Counsel given its extended impact to the rest of the company. If your business is not contemplating repeat transactions with the same terms, you may be adding unnecessary scrutiny of your agreement, and therefore time before execution, by making it a Master.
- Applicability: Related to the additional scrutiny, the terms of a Master [X] Agreement need to be applicable to all (or at least most) of the engagements you’ll be participating in with the other party. If your or their company offers a wide array of services or goods, or a broad scale of similar services, you may not want the additional obligations and standard terms of an agreement across all future projects. Specifically, when contemplating the additional obligations such as indemnification, IP ownership, and insurance requirements, you may prefer the flexibility of separate [X] Agreements per engagement rather than over-insuring a project or not claiming all relevant IP just because your company is subject to those terms in the one Master [X] Agreement.
- Leverage: The term of Master [X] Agreements is often for multiple years (3-5). If your company is the “little guy” at the onset of the engagement, you may not have a lot of leverage to negotiate terms as favorable off the bat as you would even just a year down the road when your company has more clients, more revenue, or more risk tolerance – and once the big guy gets used to the value your company provides. If you’ve already entered into a Master [X] Agreement with NET90 payment terms because you couldn’t say “no” a year ago, then you’ll be stuck waiting three months for payment for the next five years. If you’re not quite in the position of power you want or expect to be in around the corner, it may be better to execute just a [X] Agreement the first one or two engagements before broaching the efficiency of a Master [X] Agreement when the ground is a bit more even.
Now, as one of my favorite professors used to say, “Don’t hear what I’m not saying.” Master [X] Agreements can be extremely efficient tools and your company may benefit greatly by leveraging them. However, I encourage you to consider the pros and cons for your business of each Master [X] Agreement to make sure it’s the best way to achieve your company’s goals.
Picture on the top is by Sora Shimazaki and is in the public domain.
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