Think back to an experience you’ve had with a vendor – now or in the past. What went well? What didn’t? The relationship you have with your vendors – and in this case, SaaS vendors – is a big indicator of your success. And it’s all guided by your Master Service Agreement (MSA).
What should be included in a SaaS Master Service Agreement? In a nutshell, it details what you expect from the service as well as what they expect from you. Let’s dive into the purpose of an MSA, why it’s important, and which terms deserve a keener eye.
What Is a Master Service Agreement and Why Is It Important?
Also known as a software licensing agreement or enterprise licensing agreement, an MSA outlines the long-standing terms of your working relationship with your vendor. Needless to say, it’s a big deal. Pun intended.
The exact details of an MSA will vary from company to company, vendor to vendor. However, MSAs typically include clauses entailing legal and security measures to guide the relationship – without restricting business deals to come. Beyond outlining how you and your vendor will work together, it also protects both parties should unexpected events impact the relationship. That includes everything from data security, continuity of service, renewal terms, and more.
Because of the potential impacts to your business – good and bad – it’s crucial to understand the ins and outs of the MSA before signing off. As the overarching guide to your relationship with a SaaS vendor, procurement teams will likely have the first pass of reviewing and redlining. However, the final signed agreement will be a collaborative effort from finance, legal, and security, with legal making the final call.
Once finalized, an MSA will not need to change often. Although addendums and amendments can be made if changes are needed down the line.
While not part of your Master Service Agreement, it’s also important to note Scope of Work documents (SOW). An SOW complements the MSA to better outline specific projects as well as their price and payment terms. Some agreements may have multiple SOWs. Some may not include them at all. It all depends on your use case. The point here is it’s important to review these supporting documents all the same before an agreement is finalized.
What Should Be Included in a SaaS Master Service Agreement?
As such an important part of your vendor agreement, it’s essential that you understand the MSA from top to bottom. Depending on the vendor and the software in question, this can be rather extensive. However, here are some key areas that deserve particular attention.
Data and Security
As we discussed earlier, an MSA should cover data security. How is the vendor storing relevant data, if any? What is the data? How long will they store it? All of these questions should be clearly answered in the Master Service Agreement. Not only does this ensure the vendor follows compliance requirements but can protect you in the event they experience a data breach.
For example, HR software handles data such as employee social security numbers, birthdays, and other relevant information that you would expect to be under a virtual lock and key.
In terms of SaaS security, you need an MSA that clearly defines how information is shared. For example, many vendors make revenue selling and utilizing the data that flows through your platform. For many industries, this is a risk and blatant compliance breach.
For more on what you should look for in your MSA in terms of data security, check out our guide on the security measures you should look for in SaaS.
There are many reasons an organization may want or need out of an agreement with a vendor. Regardless of the exact reason, the MSA comes into play. Look for termination clauses in your agreement. What are the grounds for leaving? How much notice are you obligated to give? These should be spelled out in black and white in the MSA at the very beginning.
When negotiating these clauses, vendors will typically ask for a broader notification window to terminate a contract than you may find beneficial. You will have to negotiate with your vendor to find a reasonable compromise. Note here that you can play these effective and termination dates to your advantage, favoring the vendor in exchange for a better enterprise contract with better ROI – provided you’re willing to commit to a long-term contract.
Auto-renewal clauses aren’t always found in the MSA, but they’re often included all the same. We recommend eliminating or redlining these clauses to help you stay ahead and dictate the terms of your renewal. Otherwise, you may find yourself with a surprise renewal for an application you no longer need or want.
Unfortunately, that’s not always possible and there’s no way around an auto-renewal clause. In these cases, you will need to take particular care to stay ahead. Using a SaaS management tool to track renewals, prioritize renewal dates, and more can help you do just that. Check out these tips for help on how to beat auto-renewals.
IP Indemnification and Liability
Again, it’s important to ensure that you’re protected when something goes wrong, especially when it’s the vendor’s fault. Clauses that outline IP indemnification and liability ensure that you’re not liable. These events include data leaks, loss, or general service failure.
Let’s use HR software as an example again. Suppose the vendor of the SaaS you use to manage your employees is hacked, and you find that all of your employees’ sensitive information is leaked to the public. Clauses in your MSA would outline the grounds you would have to sue for this breach as well as who is held liable for the resulting fallout.
Effective Dates and Termination Dates
Your MSA will also outline the timeframe of your agreement – or how long it will last. What we’re discussing here is the effective date, when the contract begins, and the termination date, when the contract will end or renew.
#1 Best Practice for Negotiating Master Service Agreements
When negotiating a Master Service Agreement, you need to know what you want going in. That means understanding your preferred terms and what will work best for your company. It’s unlikely that you’ll get everything you ask for, but you need to establish your make-or-break terms – the things you absolutely need going forward.
What this means will be unique to your company. Every organization is different. Rules, requirements, and standards vary across industries. You need to identify what makes sense for you.
To this end, many companies develop a boilerplate of acceptable terms that work for them when going into negotiations. Alternatively, although less common, some companies develop their own MSA to supply to the vendor. Regardless, you need to leave the negotiation knowing that you have an MSA that will work for you and protect you throughout your working relationship with a vendor.
Once you’ve agreed to terms and entered a business relationship with a vendor, it’s time to ensure that agreement continues to work for you. Check our guide on the best practices for SaaS contract management to make that happen.
The Master Service Agreement Bottom Line
As the de facto guiding line of your working relationship with a vendor, the MSA is not something to take lightly. It covers liability, data safety, renewal terms, and much more. That’s why you need an agreement you know will work for both parties in the long term and protect you on day one from any unforeseen trouble down the road.
Negotiating a Master Service Agreement is more than understanding terms. It’s about knowing what you need.
Sometimes, bandwidth makes it challenging to tackle all the agreements for all of your SaaS. After all, the average organization has 323 applications (and often more) in their stack. Learn how Zylo’s SaaS Negotiators can give you time back in your day and the renewal coverage you need to drive value in your organization.