The Accomplished Solopreneur
Saturday, July 22, 2023
Contracts for Consultants: The MSA and SOW (with templates)
Every consulting engagement needs a contract. The contract governs the work, terms of the engagement, the services to be provided, cost and payment terms, and a whole bunch more. In this article we’re going to look at an easier way to create a contract that doesn’t require reviewing and signing tens of pages every time you engage with a client.
(And yes, I’m providing my templates for free - link at the end of this article.)
Classical contracts are a problem
There’s a lot that goes into a contract. And rightly so, because you need to cover a lot of information, eventualities and terms and conditions.
This is a problem for two reasons:
Problem 1: Multiple engagements require multiple contracts
Most of the consulting work I’ve done have resulted in multiple engagements with the client. You do something well, and they invite you back to do more.
Every time they engage you for more work, you need a new contract. Most of the contract will remain the same, but the bits that talk about the work will change.
Even if most of the contract remains the same, you and your client will have to review everything to ensure no gremlins crept in.
This is a lot of unnecessary overhead.
Problem 2: Changes in scope of work require amendments
Very often you will find that your scope of work changes after you engaged with the client. Best case, this happens when you deliver well and they want expand your scope of work. Worst case, you discover something during your engagement that requires substantial additional work.
If the changes (or request for more work) is anything more than trivial, you need to amend the contract.
Amendments are a problem because you have to address every single point in your contract that is affected.
This can be difficult to get right, and there’s always the chance that you can miss something.
A better mousetrap: the MSA and SOW
When you analyze any contract, you will find there are generally two types of information:
- Information that remains the same regardless of the work you do, like who is entering into the contract.
- Information that is specific to the work you do, for example deliverables and price.
This provides us with a convenient way to split a classical contract into two contracts.
The Master Services Agreement (MSA)
A Master Services Agreement (or MSA) contains all the stuff that remains the same irrespective of the work you do with a client. There’s a lot of legalese that goes into an MSA - my standard MSA template runs to about 6 pages.
The Statement of Work (SOW)
An SOW contains only the information that is specific to the work you’re engaged to do with your client. This includes a description of the work you’re engaged to do, the deliverables you need to produce, when the work will be done, and how much it will cost.
In my case, most of my SOW’s fit on one page, sometimes two.
What goes in the MSA, and what in the SOW?
Here are some examples of what you would include in the MSA and the SOW.
What goes in the Master Services Agreement
The best guideline you can use to decide what goes into a Master Services Agreement is the following:
- All the information that remains the same irrespective of the work you’re engaged to do.
- A mention that you will use one or more Statements of Work to specify engagement-specific details.
For example, your MSA may include headings that specify:
- Who the contracting parties are.
- The general terms of the agreement, including when it will expire and under which conditions it can be terminated.
- Payment methods and terms.
- Confidentiality of client information.
- Ownership of intellectual property.
My default MSA template runs to about 6 pages, so rather than list all the contents here, download the example templates (link at the bottom of this article - they’re free).
What goes in the Statement of Work
Because your MSA contains the bulk of the information that governs your relationship with your client, the Statement of Work (SOW) can be short. This will typically include:
- A mention of the governing MSA.
- A description of the work you’re engaged to do.
- Deliverables (if applicable).
- When you will start and when the engagement is expected to end.
- Price and payment.
I usually include a sentence that specifies that work will commence only after the signed SOW and first payment is received.
Benefits of splitting the MSA and SOW
Splitting a contract into a separate Master Services Agreement and one or more Statements of work has a number of benefits:
- Professional image: Presenting your client with short, simple and to the point documents showcases your professional approach to business.
- Easier to navigate, review and understand: Shorter documents are simply easier. The longer the document, the more onerous it is to work with it.
- Easier to adapt to changing requirements: New work or changes to work are easier to formalize.
Contracts get a lot of attention while you’re negotiating with the client. If things go well, you will probably never look at your MSA again. But you should review your SOW periodically - delivering what you’re contracted to do is critical to maintaining good client relationshops.
Download the templates
Here are the templates I use for my Master Services Agreement and Statement of Work. There are a couple of things to know before you download them:
- The templates are provided as examples only and do not constitute advice of any kind. (My lawyer says I have to say this, and he’s right.)
- These templates are appropriate for my legal jurisdiction. Consult with a local professional to adapt them for your needs.