How to Use MSAs and SOWs

Most small businesses want to get as much work as they can. One way to make that easier, is to use the MSA/SOW format for your client agreements.

Below is a summary of what the MSA/SOW format is, why it is so great, and best practices for your business.

The MSA/SOW format

MSA stands for Master Service Agreement and SOW stands for Scope of Work (or sometimes Statement of Work).

You and your client will sign an MSA that establishes the legal terms between the parties. The MSA will usually run for one to three years. Then, you and your client can sign one or more statements of work to agree on project-specific services and payment terms. Each SOW is then attached to and governed by the MSA. You can also use MSAs and SOWs with other parties like subcontractors.

We don’t have MSAs and SOWs in our contract platform yet (they are coming soon), but you can still create client agreements designed for humans using Rally right now. Create your first contract for free »

Why you should use the MSA/SOW format

There are a lot of advantages to using the MSA/SOW format. Here are a few important ones for small and mid-sized businesses:

• After the MSA is signed, you can use it for years without having to continuously renegotiate the legal stuff.
• You and your client can quickly negotiate individual SOWs that focus on project-specific services and payment terms. These can be as short as one page in some cases.
• If permitted in the MSA, a party can terminate one SOW without terminating all the other SOWs.

Best practices for small and mid-sized businesses

When businesses work with MSAs and SOWs, they need to be very careful to make sure they do it right. Here are some suggestions.

The MSA:

• Make it clear the MSA is just an MSA and that services and payment will be agreed to in SOW(s).
• Always define the term (the length) of the MSA. And if applicable, provide instructions for renewals.
• It’s usually a good idea to include a clause that automatically extends the term until all SOWs are completed.
• Include all important legal issues in the MSA (for example default invoice/payment terms, ownership of intellectual property, non-disclosure obligations, etc.)
• State which document (the MSA or the SOW) will control if there are conflicting terms between the two.
• Cover termination rights in the MSA (sometimes a party can terminate just one SOW, other times it must be all or none).

The SOW:

• Make sure each SOW references the MSA to which it will be attached.
• Use some kind of unique numbering system to make it easy to refer back to each specific SOW.
• Cleary state each party’s obligations (payment, delivery, services, etc.).

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Related Guides

There’s so much more to learn! Here are a few related guides you should read:

• The Skinny: What is a Contract?
• Drafting: Five rules to write better contracts
• Templates: Four ways to get a contract template
• Oral Agreements: Are oral agreements enforceable?
• Party Names: The right way to identify parties