Services agreement
How to review a services agreement (MSA / SOW)
In a services agreement, look first at the scope of work and acceptance, then payment terms, ownership of the deliverables, limitation of liability and termination rights. Disputes usually come from vague scope and from liability that is unlimited for one side only.
Legal background
- Governing contract law (common law or civil law)
- IP assignment rules of the relevant jurisdiction
- Consumer or employment rules where the arrangement could be recharacterised
Main risks
01Vague scope and change control
Services are described as “as requested”, with no deliverables, milestones or process for change requests.
02No acceptance criteria
No test period or objective acceptance standard, so work can be rejected indefinitely or deemed accepted by silence.
03Payment terms
Long payment periods, unilateral rate changes, no late-payment interest, or milestone payments not linked to acceptance.
04IP ownership unclear
No statement of who owns deliverables, background IP and tools; the customer may pay for work it cannot freely use.
05Unlimited or one-sided liability
No cap, or a cap that applies only to the supplier. Consequential-damages waivers are one-way.
06Termination for convenience on one side only
One party may leave at short notice, the other is locked in with no compensation for work done.
Example finding and redline
Clause in the contract
“Supplier shall provide the services as reasonably requested by Customer from time to time.”
Why it is risky
Open-ended scope: the supplier can be asked for unlimited work for the same fee.
Suggested fix
“Supplier shall provide the services described in Statement of Work No. 1. Any change requires a written change order agreed by both parties and may change the fees and timetable.”
Pre-signing checklist
- Scope, deliverables and milestones are described in a statement of work
- Acceptance criteria and a deemed-acceptance rule are defined
- Fees, invoicing, taxes and late-payment terms are clear
- Ownership and licence of deliverables and background IP
- Confidentiality and data-protection terms (DPA where personal data)
- Warranties, indemnities and a mutual liability cap
- Termination rights, notice and payment for work done
- Governing law and dispute resolution
FAQ
- What is the difference between an MSA and an SOW?
- An MSA sets the general legal terms that apply to all projects. Each statement of work (SOW) then describes one project: scope, deliverables, timetable and price. If they conflict, the MSA should say which prevails.
- What liability cap is typical?
- Commonly the fees paid or payable in the previous twelve months, with exclusions for fraud, wilful misconduct and, in many deals, confidentiality or data-protection breaches. The right number depends on the risk.
This material is for general information and is not legal advice. Rules differ by jurisdiction; have a lawyer review any significant contract before you sign.