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Signing a Master Service Agreement

   May 2018 / Vol 8 Issue 3

Signing a Master Service Agreement
By: Adam Smith, Account Executive at Henderson Brothers, Inc.

 

In the energy sector, the steel-toed boots of a sub-contractor can’t set foot on a jobsite without signing a Master Service Agreement (MSA). A MSA is when two parties agree to a contract that will settle most details and expectations for both parties for future agreements. The idea is that a MSA enables parties to quickly negotiate future transactions or agreements, because they can rely on the terms of the master agreement, so that the same terms need not be repetitively negotiated, and to negotiate only the deal specific terms.

Hopefully, most of the terms of a MSA are common sense and beneficial to mitigating risk for all parties. This is not always the case. In today’s reality, a subcontractor is agreeing to the terms of the operator or contractor awarding the work without any negotiation.

There are two sections that should be of particular interest to an Energy contractor. Those are the Indemnity and Insurance Sections.

The Indemnity Section outlines who is responsible in case of damage to property or bodily injury to either party. It is very common in the oil patch that you’ll find a “Knock for Knock” agreement. Basically, each party is responsible for their own employees and equipment regardless of fault.

The Insurance Section outlines what limits and special endorsements should be included in the subcontractor’s insurance program to comply with the Indemnity Section. Danger! An Insurance Program that is insufficiently designed can cause a business owner and contractor huge sums of money. The key in your risk management program is to make sure the insurance contract (policy) is written to satisfy the promises that you are making when you sign a MSA. We have found that this is an art not a science. Some MSAs are written with terminology that cannot be covered by an insurance policy. It is imperative that your insurance advisor is outlining what items the policy will satisfy and what items you will have to take a business risk or attempt to negotiate those items out of the MSA before it is signed. The time to negotiate special terms and conditions is prior to the start date and not after a claim has occurred. Many uncovered claim situations could have been avoided if the contractor partners with an insurance broker who knows how to add the proper endorsements to a standard insurance policy so the MSA requirements are satisfied. In some instances as previously mentioned an insurance contract will not be able to respond to some of the onerous and unreasonable requests that we see on some MSA. In those instances a contractor needs to be advised and the contractor then can decide on how to handle these issues before they enter into a contract.

MSA agreements are very common in the energy business and have different terminology than most of the contractual requirements a contractor may face in the non-energy sector. Make sure your insurance broker is well versed in the MSA requirements and has the experience with the insurance carriers to provide all the special coverages required by the MSA. I have developed many insurance programs that have saved our energy clients a lot of money in many difficult claim scenarios.

For more information, contact Adam Smith at 412-261-1842 ext. 307 or aesmith@hendersonbrothers.com

 

 

 

 

 

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