Do You Need A Master Services Agreement | Multithreaded Income Episode 37

of many episodes that I'm calling answers from my dear friend, Sean, because I have a friend, his name is Sean, and he's asking some questions about going independence for the first time. And I feel like I could answer him directly, but I could also just share the information with you all in case you're in a similar position as Sean and could find some value from the different answers.

The question for today and Sean asks, Kevin, do you use a master service agreements or any other type of contract with your clients? Answer is absolutely. I use a master service agreement with all my clients. It's a prerequisite for Any engagement that I do. Now let's talk about the purpose of the master service agreement or the MSA and why it's something

that we probably want to have for, for various reasons. First let's caveat this with, I haven't always used the master service agreement for the first couple of years of my freelancing contracting gig. I didn't have formal agreements. I did start that. When I started becoming a little bit more serious about the contracting that I was doing, but I didn't really have one out of the gates because I didn't know how to get one. And. It's a lot of effort.

So first, let's talk about what is the master service agreement. It's a contract, a small contract, hopefully that you control that outlines how the

engagement between you and the client that you're working for is going to work. And this is meant to answer questions and set expectations before potential issues occur in the future. A master service agreement isn't terribly complicated from a contractual standpoint. I'm just casually reviewing the one that I recently just got updated with my lawyer. And I want to talk through some of the various sections of it.

This isn't going to be a full detail of what goes into an MSA, but the first section is basically saying, Hey, uh, I'm going to do work for you, the clients, and we're going to outline the work that's going to be done. On another part of the document called the statement of work, you've probably heard of that term before, but the statement of work simply says, what are we going to do? How much is it going to cost? When will it be done by?

And you can get more broad and narrow with that's a little bit later, but essentially we're just setting up some expectations that work is going to be done. What's really cool about outlining. A statement of work later is that we can change the statement of work without changing the entire master service agreement. And this has happened to me multiple times previously, where I do the work and we get to the point where we've either finished or we want to go off and do something else.

We can update or revise the statement of work without having to re agree to all the other terms. Those are always set in stone. I also do this for multiple engagements. If I finish one engagement, I'll go off and do another engagement. No need for another MSA. We just set up a new statement of work and we move forward. We also really want to dictate that in this relationship, I am not an employee. I'm an independent contractor providing independent services.

I am not held to the employment standards of whatever federal laws or state laws that might apply. And again, another caveat, I'm sorry. This is primarily for us based contractors and in pen consultants. Um, there are still things you might want to do if you're working with international clients, but not really the topic for this conversation, there's a section in MSA that talks about warranties. And I think this is an important thing to have.

And every lawyer I've talked to says, yes, you want to have the basically warranties and what you will and what you won't cover. Um, my warranty for my master service agreement says, I am going to do the best job possible. I'm going to try to cover as many things as possible, But essentially the work that I'm doing for you is warrantied as is, meaning what you get is what you get.

If you sign off and you approve on it, it's what you got, and I'm not liable for any damages that my software causes in the future because of a mistake that I make. Now you are fully able to change your warranty in any way, shape or form that you want to. If you want to provide a warranty for a month, a couple of months, a couple of weeks, it's really up to you what you support. I personally don't provide a warranty.

Because software is a very iterative process and there should be an exhaustive approval process before anything ever goes out of production. A business should not lose money because of something I've done if the software has been signed off on by the client. The next big section of MSA is going to be fees and payment. So this is really the most critical one is one of the smaller sections. I have a policy in my MSA that says you need to pay me within 14 days of the time I invoice you.

I am not a bank. You need to Additionally, I add in a clause that says if you fail to pay me within 30 days of the date that I've invoiced you, I reserve the right to charge you additional fees on top of the original amounts. So this is specifically called a fee. It's not called a penalty. A penalty has certain connotations inside of a contract. So we just call it a fee.

If you don't pay me within 30 days, I can charge you a fee of up to 10 percent of the amount that you owed and that's due immediately at the time that it's charged. This is also the section where you can set expectations for additional expenses. If you need to license software

or pay for different services in order to accomplish your job, some of these expenses that you should be able to pay for. Immediately without prior approval, I have a stipulation in my MSA that says I will get approval if it's more than a certain amount, typically 500 or more, I'll ask for approval. If it's less than that, I'm allowed to charge and submit for, for reimbursement.

Moving on through a typical MSA, you have a section on Intellectual property ownership, who owns the code that you write? Uh, again, pretty straightforward. If the client pays their bills, they own the IP that I'm writing. You might have a use case where you want to develop the IP yourself and, uh, you want to lease it to a particular client. That's a different way to write your contract.

So again, Talk to a lawyer, but I tend to assign all the IP to the client who's paying me because they're paying me a good amount of money for that IP. And it's in the best interest of these companies to maintain overship of the IP that they're paying for. There have always been cases where a. Company will lease IP from you. If you're going to take it over as an owner, more down the list, let's talk about term and termination. And this is important for a couple of different reasons.

Um, first I have a clause that says, well, either party. Can terminate the agreement with 30 days notice. This is really useful to me because it means I get 30 days warning before a contract is going to end prematurely. Um, it also means if I want to fire the clients, I have to give 30 days notice. I have a horror story of having to have done that, that we can talk about at a different time, but it's nice having that little bit of lead time. So you're just not fired immediately.

And all of a sudden you don't have any work to do. There's also a condition in there that says, if you don't pay, I can terminate the contract immediately. That's always safe to have. And there's continuation. So the. Contract will run for ever until one of the two parties decide to terminate it completely. There's also stuff in there that says if it's terminated, the client owes me all the money at the end of the contract. They can't push it off. They have to pay the entire bill.

So good to have these sort of terms in your agreement. Now quickly just going through the rest of it. There's stuff around confidentiality, uh, disparagement, identification, it's standard contract legalese that your lawyer will put into the contract just to make sure that you're protected and also a level of protection for the client as well. Additionally, there's some information in there. How do you handle disputes? So what happens if there's a problem between the two of you?

How do you take care of that in a reasonable legal way? There's also some legalese around governing law. So, In the United States in particular, you have to pick what jurisdiction, what set of law are you going to abide by? Uh, for me, I take care of governing law in Virginia because I'm based in Virginia. And I've had clients that have wanted to change the governing law to a different state. And I leave a

lot of that up to my lawyer, whether or not it's reasonable to make that change. It's kind of like just choosing which rule book you want to go by. Because if You're going by the rules in Virginia. They might differ than the rules in Nevada. And this is also a really good reason why you see a lot of corporations incorporate in Delaware, because Delaware has a very trusted and practiced. A business law. This is where we transition the conversation to say, how do you get the MSA?

You know, obviously it means you're going to work with a lawyer. I don't recommend just buying something off the internet and trying to make it legal because it might not necessarily be legal in the state where you're trying to. Make it legal. So, uh, I originally started with a boilerplate and there's nothing wrong with that. It has all the key things that you need. And I took that to a lawyer and I had a conversation with the lawyer about what it was I was looking to do.

And they made my contract legal for the state of Virginia. I could then take that contract and send it out to my various clients and they would sign it and agree to it. Now, sometimes a client will want to do what's called redlining. And that means there's parts of the contract that they don't agree with and that they would like to change. That might be something like payment terms.

So if your payment terms are net 14, they might come back and say, we would love to do net 14, but it'd be more reasonable for us to do net 30. That is something you have to agree to. And. They'll do this in a couple of different places. And again, it's a really good idea to have a lawyer to review

the red lines and to either say yes or no. A lot of times with red lines, it's a matter of choosing your battles. Is this something I want to fight over or is this something that I really need to Just let go. It's not a big deal. Um, it's hit or miss this again, while you have the lawyer, because ultimately if there's a problem with the contract, it's your lawyer, who's going to be the one that you have to go with the, to help defend it.

So it's in your best interest to just listen to your lawyer. So Sean, or anyone out there listening, I hope that. Helps answer the question of, do you use a contract for your consulting or freelancing work? And how do you go about getting the master service agreement? I'll wrap up this conversation by just saying, I have thankfully never really had to test my MSA in court. I've never had to sue anyone and I've never been sued.

So it's more peace of mind of just knowing that I have a legal, um, role. Protection in case something ever goes along with one of my clients, use that as some motivation to go out and get your MSA set up. And if you have any questions about who you talk to or where you go, why don't you come into the multi threaded income discord and we'll try to direct you in the right. Place to get some answers to those questions. Join us at mti.

to slash discord, and we would love the chat, but we'll go in and cut it there. Thank you all so much for listening. We'll be back in a new episode soon, where we talk about some other questions that my friend, Sean had about becoming an independent consultant. Y'all take care. I'll see you next time.