Managing Termination Tug-of-War Under an MSA

A Master Service Agreement (“MSA”) is an umbrella agreement governing the rights and obligations of both the party requesting service and the vendor that provides it, for any number of projects that they jointly agree to undertake. Due to its comprehensive scope and wide-ranging applicability to multiple concurrent projects, the termination of an MSA, or specific projects thereunder, can be a complex and challenging undertaking.

MSAs, like most commercial contracts, are usually terminable (1) for convenience, upon some fixed period of prior notice, (2) for cause, upon a material breach of the MSA, or (3) upon other specified conditions, like bankruptcy or insolvency.  Additionally, under most MSAs, one or both parties have the right to terminate or suspend specific projects or work orders without terminating the whole MSA.  In either case, care must be taken in drafting an MSA to ensure that the effects of termination on work underway or upon orders placed prior to such termination are clearly established.

Naturally, the parties have competing priorities in negotiating such termination language. The party requesting work wants to maximize its flexibility, avoid paying for goods or services they don’t need, and prevent the imposition of cancellation fees, penalties, and costs.  The vendor wants certainty that their resources will be deployed to maximize their productive capacity, avoid downtime and sunk costs, and generally be kept whole regarding the work they agreed to perform.  Clear language specifying how and when work can be canceled and allocating responsibility between the parties for matters such as demobilization, re-work, non-cancellable third-party orders, restocking fees and/or fixed markups will help the parties avoid disputes and delays.

The lawyers at RR&A understand the interplay of these preferences and appreciate the real-world impacts of these provisions on both the requesting party and the vendor.  Let us help your business by negotiating your MSAs to protect your interests and bottom line.

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