Master Service Agreements Are Exploding into Commercial Transactions

Master service agreements, a/k/a master subcontract agreements, or “MSA's” have become increasingly popular in recent years.  So what is an MSA?  Simply put, an MSA is an agreement upon commercial terms governing the relationship between contracting parties, without a price, scope of work, or schedule.  MSA's contemplate that the work or services to be provided will be defined at a future date by a task order, work order, or change order.  (e.g. “Task Order”).  The future Task Order identifies the scope of work or services, the price, the schedule, and any other terms specific to the transaction.  MSA's  are most appropriate where a contracting party is confident it will have a future need for work or services, has identified a source to fulfill the need, but cannot identify the exact need at the time the MSA is executed (i.e. emergencies, repeat business).

Despite recent popularity, MSA's are not a new concept.  Agreements defining commercial terms, excluding price, scope, and schedule,  have been used by the federal government since the 1960's.  The federal government named such contracts “Indefinite Duration- Indefinite Quantity" contracts, or IDIQ contracts. IDIQ contracts represent the early forms of MSA's and were typically used to contract for emergency services, where response time was critical.  With an IDIQ contract in place, the federal government could quickly issue a work order on an as-needed basis authorizing immediate repairs to  government assets.  The flexibility offered by IDIQ contracts later migrated into the contracting practices used by State and local governments, and were often referred to as “Task Order Based Contracts”. 

As IDIQ contracts and Task Order Based Contracts  migrated into the private sector, they were rebranded as MSA's.  Regardless of the name applied, each of these contracts works the same.  The contracting parties negotiate an MSA identifying all critical commercial terms governing any future transactions.  The MSA remains in place for a pre-defined term, but does not require either party to do anything, until a Task Order is agreed upon.  Once a Task Order is agreed upon, the work or services are provided based upon the price and schedule identified therein.  There is generally no limit upon the number of Task Orders issued under an MSA, so long as the Task Order is issued prior to expiration of the term of the MSA. 

Nowadays, MSA's in the private sector are being used for purposes far beyond their original intended use.  IDIQ contracts, and their rebranding as MSA's were intended for use in two situations: 1.) emergency services, and 2.) multiple repetitive transactions.  Today, MSA's are often used for generic one-off contracts, that are neither emergencies, nor repeat business.  It is now common place to see an MSA executed on the same date as a Task Order, meaning the transaction could and should have been completed in a single contract.   Since all MSA's require the negotiation and execution of a future Task Order, MSA's never create a captive, exclusive relationship between contracting parties.   So these one-off contracts make no sense when extended beyond their original intent.  Once contracting parties understand such limitations, MSA's should return to their originally intended use.