Master Services Agreement

The first important step to develop successful, long-term relationships with your ongoing clients is negotiation and execution of a Master Services Agreement (MSA). The MSA will define the overall relationship between a consulting engineer and an owner of a project. An MSA is executed most commonly where it is contemplated that the engineer and owner will enter into subsequent contracts for specific services. The benefit of this type of contract is that it permits the engineer and owner to quickly negotiate future agreements.

The following six key areas will ensure a smooth negotiation process:

Key Personnel. As a consulting engineer, the most valuable asset you have is your people. The owner may seek broad discretion to remove any personnel and the right to terminate the MSA without cause. However, as the engineer, you will want to seek to limit the ability of the owner, through the MSA, to arbitrarily remove your people from any subsequent projects.

As the consulting engineer, you will be seeking to permit changes to the key personnel list only with the consent of both owner and engineer. This provision should be clear that, other than by mutual consent, the only way a key person can be removed is if that person no longer holds the position with the engineer. In such an arrangement, the engineer must pay particular attention to who is included on the key personnel list and what their role is, which can be challenging given that details regarding the scope of any work may not yet be known or disclosed.

Warranty. In the warranty clause the engineer warrants that all services performed by the engineer will be free of any defects in workmanship and will conform to the specifications. The owner may initially seek a 24-month warranty period in the MSA. However, even for larger projects, the industry standard is 12 months. I appreciate it is not a particularly compelling negotiation tactic to say “everyone is doing it,” but it is useful to ask the owner to specify exactly why they need 24 months instead of the standard 12 months. In some cases, the owner will only be able to justify a period of 12 months for defects or other problems that arise to be covered by the warranty.

Limitation of Liability. The owner will seek to transfer as much liability as it can to the engineer by way of the MSA. As the engineer, you want to be sure to include a provision that limits your liability to the total value of the contract, and you should also seek to negotiate a mutual indemnification, as opposed to a unilateral one whereby the engineer only indemnifies the owner.

Payment. Be sure there is a specific provision requiring the owner to pay you. Some standard form MSAs will not include such clause. As the engineer you will want to negotiate the best payment terms you can in the MSA to avoid protracted negotiations with subsequent contracts later. When negotiating an MSA with a large organization, pay particular attention to the proposed review and approval process that you are agreeing to regarding payment of invoices. The “standard” review and approval process for invoicing in a large multinational company can take much longer than you anticipate.

Arbitration or the courts? A private owner developing a project will not want the bad publicity that follows a public dispute. Accordingly, the owner may seek to include an arbitration clause that will resolve the dispute privately outside the courts and off public record. Engineers may actually want to seek resolution in the courts in some cases, as there is generally less of a reason for engineers to keep a dispute private. A public dispute about the project is usually much more damaging to the owner, which can serve as a disincentive for the owner to pursue legal action against the engineer, either as defendant or by way of a third party action.

Termination. The owner will be seeking to obtain as many ways as possible to terminate the MSA and subsequent contracts, while the engineer will want to limit that possibility. For example, the owner may seek a clause which allows the MSA to be terminated if any milestones in subsequently executed contracts are not met. You should avoid linking the performance of any subsequent contract to the termination of the framework MSA — each contract for separate projects is different.

Owners may also seek to allow the termination of the MSA if there are delays in any projects. The engineer should insist on a reasonable notice period that the owner must comply with before terminating the MSA for delay of a particular project. The owner may also seek to allow immediate termination if the engineer breaches the terms of the MSA. A good compromise is to include a dispute resolution clause which provides that both parties must negotiate in good faith for a period before the contract can be terminated.

Remember — every agreement is different. Consult a professional advisor to start your relationship with an owner in a way that is likely to succeed. cce

Chad Eggerman is a lawyer with Miller Thomson LLP in Saskatoon, Saskatchewan. E-mail ceggerman@millerthomson.com