What Happens When You Default on a MSA?

August 21st, 2017

What Happens When You Default on a MSA?

When you drafted your master services agreement (MSA), you should have spent some time thinking through what would happen in the event that either party defaulted on payment or performance. While this isn’t something you generally want to think about at the beginning of a business deal, doing so provides a road map for future interactions when the unexpected situation arises.

Consider the following situations that could lead to default and how you’d like your agreement to handle each of them. Generally, each of these situations arise for a variety of reasons, so you want to make an agreement that is both functional for you and fair for both parties involved.

  • Late Payment: Depending on the type of services covered by the MSA, late payment could trigger the end of services or interest being applied to the bill. In certain cases, you may want to specify that the customer is responsible for paying attorney’s fees and costs incurred when colleting payment. Some industries have built in payment protections such as in construction law, where late payment also triggers the filing of mechanics liens.
  • Termination for Cause: If the service provider is in default by not performing as agreed, missing milestones, or otherwise violating the terms of the agreement, then there is a situation where the purchaser can terminate the service provider. In these cases, it is best to agree up front whether the purchaser must first provide notice of the breech and time to cure, how long the service provider has to fix the issue, and when work and payment will stop. For all projects, the terms should clearly define how much payment is owed once work has ceased. There should also be a provision in the contract that covers termination of the agreement not for cause, where neither party has defaulted, but the agreement needs to end.
  • Force Majeure: Sometimes, hurricanes, floods, terrorist attacks, and other unexpected events occur. These are considered acts of God or events beyond the planning or control of either party that may cause one party or the other to unexpectedly breach the agreement. Contracts with these clauses exempt parties for fulfilling their contractual duties in these situations and allow for appropriate adjustment in terms and timeline for everyone to get back on track where possible.

For help reviewing your master services agreement and updating it to reflect the goals of your business or a particular project, call Virtus Law Firm at 612.888.1000 or email us at info@virtuslaw.com. We have significant experience drafting and negotiating contracts and can help you create one that works specifically for your business.