The Digital advertising and marketing business is complex.
We straddle the line between sensory-rich storytelling, information dissemination, and software development. We deal in innovation (habitually pushing technology), creativity (one of the most subjective subjects on earth) and more often than not we operate under extremely difficult production schedules. Couple this with the inherent contractual challenges relating to work for hire, idea ownership, and payment schedules, and you have a great deal to concern yourself with when entering into an agreement for services. Thus, there is an essential need to have a rock solid Master Services Agreement in place to protect your agency, the client, and the overall sustainability of the account.
A few quick points before jumping into the key clauses:
- As with any good relationship, it is imperative that you discuss potential pain points with the hope of reaching consensus around sticky issues. Pre-defined, mutually agreeable terms (documented in a MSA) can be the difference between a potentially antagonistic relationship and a mutually beneficial foundation that can stand the test of time.
- A Master Services Agreement is different than a Scope of Work. Ideally the MSA governs the overall terms of the corporate relationship and a SOW defines a particular project. One key benefit to having a MSA in place is the expeditious actioning of a particular project (just sign the SOW and off you go).
- Lastly, the tone of the document is incredibly important in determining the parties involved (on both sides) and the mutual level of understanding surrounding the relationship parameters. At AgencyNet, we’ve chosen to write our MSA in a friendly and conversational tone, utilizing easy-to-understand language, with as little legalese as necessary. I want our clients (CMO’s, VP Marketing, etc.) as well as the key stakeholders over here, to fully understand the terms of our relationship. You’ll recognize this approach in the suggested language below.
Now that that’s out of the way, it’s important to note that the information below is not a silver-bullet to deal with all of your contractual challenges. Each project and relationship is unique and terms should be considered accordingly. That said, if you evaluate the 10 topics listed below and develop your POV around each, you’ll go into contract negotiations knowing what you’re willing to accept and where you have to draw the line.
1. Term: When does the Relationship begin and when does it end?
Key Discussion Points: Can either party terminate the agreement at any time? Under what grounds can the contract be terminated? Did you incur hiring or technology costs related to this relationship? If so, will notice have to be provided? Is there a termination fee? Does either side or just the client incur the fee?
Our relationship begins after both you and we sign this Agreement and deliver signed versions of this Agreement to each other. We will continue to work together under this Agreement until either you send us, or we send you, written notice terminating this Agreement, which must be sent no less than three (3) months prior to the effective date of termination, unless special circumstances exist (as described below in this Agreement). If no SOW’s or projects are outstanding at the time of termination, then this Agreement will end permanently; otherwise, the terms of the outstanding SOW(s) will continue under this Agreement until their natural expiration date(s). A particular project under a SOW may be terminated according to the terms contained in a particular SOW.
Either party may terminate this Agreement immediately if the other party commits a material breach of this Agreement, and that breach is not adequately and reasonably fixed within ten (10) days following notice of the breach. Alternatively, AgencyNet reserves the right to suspend upon ten (10) days written notice, but not terminate, services for as long as any overdue balance remains unpaid.
2. Ownership: Who owns what?
Key Discussion Points: Does everything you create fall under work-for-hire? Are you utilizing any existing code as the basis of the build? If so, are you planning on using it again (potentially for another client)? Will you be incorporating any 3rd party materials into the build? Are you granting a worldwide license, in perpetuity or is there a predefined period of time that the client can use the materials? Are you comfortable turning over the source code prior to receiving payment for the entire project?
It’s actually not that complicated. There are certain materials that you will own, and there are certain materials that we will own. Here’s how it works: until you pay for the services provided to you, we own everything that we create under this Agreement. (To the extent we don’t own it, we are the licensor of everything we create).
Once you are fully paid-up, then:
AgencyNet owns, and will continue to own at all times, all know-how, methods, processes, templates (both electronic and printed), tools necessary to create materials and/or provide services to you, generic computer coding, generic designs, generic graphics, and related materials that AgencyNet (i) had before this Agreement was signed, and/or (ii) that AgencyNet developed during the course of providing services to you (collectively, “AgencyNet IP”).
You own and/or have rights to the final product created by us, which will consist of at least one, and perhaps all three, of the following things: (1) materials that we created for you that you own fully and completely (“Your IP”); (2) materials that we own, such as AgencyNet IP, that is inextricably intertwined with your IP, and (3) third party materials that are inextricably intertwined with your IP (“Third Party Materials”). With regard to AgencyNet IP, we will own those materials at all times, as described above. If AgencyNet IP is included in the Project, then we hereby grant you a non-exclusive, worldwide, transferable license to use the AgencyNet IP in conjunction with Your IP. You can’t separate the AgencyNet IP from your IP; however, you can use it in conjunction with the Project and your IP. With regard to Third Party Materials, neither you, nor we, own those materials. Third Party Materials are materials that either you or we license, and have the right to include and sub-license as part of the Project.
3. Indemnification: What happens if either of us gets sued?
Key Discussion Points: Whose idea is it? Are you performing a patent search? If so, who’s paying? Will you be building on top of a legacy system? If so, who owns the software? Is it a license? Open source? Is the client supplying assets or are you creating, licensing, or shooting them?
Let’s make this mutual.
We indemnify you for all assets we bring to the project, and you indemnify us for all assets you bring to the project. If we create software or develop an idea that came from us, we will ensure it does not infringe on and indemnify against an existing patent or copyright. Alternatively, if we develop on-top of a legacy system that you provide or we develop an idea that came from you, you will ensure it does not infringe on and indemnify against an existing patent or copyright. Indemnification liability on AgencyNet will be capped at the total project budget or the maximum payout from our current E&O policy, which ever is higher. Proof of coverage amount and policy status to be provided by AgencyNet.
4. Confidentiality: We know a lot and promise not to tell.
Key Discussion Points: How secure are your agency’s systems and communication paths? Are your servers locked down? How about your network? Do your employees know the sensitivity of the information the client is sharing with you? How about the importance of the agency’s IP, proprietary documentation/formulas and know-how?
We both agree that during the course of this Agreement, information that is confidential or proprietary may be disclosed between and among us including but not limited to: software, technical processes, formulas, source codes, sales, costs, other unpublished financial information, product and business plans, advertising revenues, usage rates, advertising relationships, projections, and marketing data (“Confidential Information”).
Except as provided for in this Agreement, neither of us shall make any disclosure of the Confidential Information to anyone other than our employees who have a need to know such information in connection with this Agreement. Each of us will notify our employees of their confidentiality obligations with respect to the Confidential Information, and require our employees to comply with these obligations.
In regards to your data and our IP, governance of and proprietary rights will be outlined in either the SOW or within this MSA. Additionally, AgencyNet will provide our technical infrastructure map and redundancy plan to any active client who requests it.
Confidential Information shall not include information that the receiving party can demonstrate (i) is, as of the time of its disclosure, or thereafter becomes part of the public domain through a source other than the receiving party, (ii) was known to the receiving party as of the time of its disclosure, (iii) is independently developed by the receiving party, or (iv) is subsequently learned from a third party not under a confidentiality obligation to the providing party.
5. Assumptions: Do You Stand Behind Your Services?
Key Discussion Points: Will you be handing over code to the client at the conclusion of the project? If so, will it be modified or enhanced in any way (by someone other than your agency)? If not, how long will you guarantee that the project will function?
Do You Stand Behind Your Services?
Absolutely. We warrant that the project we develop for you (the “Project”) and deliver to you, will function in accordance with the features described in the SOW pertaining to that project on the specific devices outlined on date of delivery.
We also warrant that our services will be performed in a highly competent and skillful manner. To the best of our knowledge, neither the materials comprising the Project nor the Project itself (as the Project is provided to you by AgencyNet) will infringe, or be a misappropriation of, the property rights of any third parties. If you modify the Project to any extent, however, we cannot and will not continue to warrant that the Project will function properly, or that it will not infringe the rights of third parties.
6. Scope of Work: How do we define the work?
Key Discussion Points: We don’t make static print ads. It’s not as easy as swapping out a layer in Photoshop. We build software, design 3D imagery and create motion – all utilizing other party’s complex software. That said, it’s exciting stuff. Everyone wants to push the boundaries – innovate more. Creative is subjective. But timelines are locked (or are they?) and budgets are predetermined. You need to define and prioritize… How many rounds of creative changes are you willing to accept? How about usability revisions? What about last minute polishing to make it ‘even better’?
Let’s be PALs.
No, we are not talking about becoming your best friend (that would be an additional charge). PAL stands for “Project Attribute List”. A PAL is a list that we mutually agree upon, in which deliverables are assigned to one of three priority levels: A, B or C. These levels are discussed in greater detail below. You and AgencyNet will agree upon a PAL that is most suitable for your particular project, time constraints, and budget.
Question: Why are we doing this?
(Simple) Answer: We’re doing it for you. And us.
As your project progresses, you may want us to re-prioritize the order in which deliverables are produced or delivered. We may be able to accommodate such requests (just ask us—we’ll let you know). You understand, however, that if we agree to make any changes, it may delay the production and delivery and potential costs associated with other parts of your project. So, in order to make sure that we accomplish your most important goals in the time frame and budgetary constraints listed in the SOW, you and AgencyNet will create and agree upon a PAL before work begins.
PAL Level Designations
- PAL level A is reserved for the most important, “top priority” deliverables that must be provided to you by the date indicated in the PAL. In other words, PAL level A is the stuff you must have.
- PAL level B is reserved for those deliverables that will be provided to you if there is sufficient time under the SOW to do so after we complete all PAL level A items. Generally, if there are no delays caused by you or other circumstances outside of our control, we can usually accomplish 10% of PAL level B deliverables. You understand and agree, however, that we approach PAL level B deliverables on a “best efforts” basis, and will not provide services beyond the time parameters listed in the SOW.
- PAL level C is a wish list. It’s the stuff you hope to have, but due to time or budget constraints, you don’t expect to get (and we don’t expect to give you) unless (i) we mutually agree to move items up from level C to level A; (ii) we mutually agree to reduce the number of Level A and/or B items, thus increasing your odds that we will have the time and/or budget remaining to get to your level C deliverables, or (iii) you enter into a separate written SOW with us to produce such deliverables.
7. Change Orders: Because the CEO hates yellow and loves Facebook apps (today).
Key Discussion Points: Projects evolve. Our client’s business models and needs evolve. Involvement of client-side personnel evolves. Opportunities evolve. Often times, budgets do not. How do you manage the deliverable list in such a fluid environment while keeping the relationship intact?
Requests for Re-Prioritization
All requests for re-prioritization of the deliverables in a PAL must be provided to AgencyNet in writing (email is fine). We will act on a “best efforts” basis to accommodate your reasonable requests for re-prioritization.
Unless otherwise provided to you in writing by AgencyNet, we do not guarantee the development or delivery of deliverables except for those listed in PAL level A. Under no circumstances shall AgencyNet be required to perform any work on deliverables in PAL levels B and C if doing so would either (i) require AgencyNet to provide services beyond the time parameters indicated in the SOW, (ii) in AgencyNet’s opinion, cause the price of the project to exceed the price(s) to be paid to AgencyNet under the SOW, or (iii) jeopardize the quality of PAL level A deliverables.
Re-Prioritizing vs. Change: What’s the Difference?
Re-prioritization of a deliverable does not mean the same thing as “revising” a deliverable. If you want to re-prioritize a deliverable, go back and take a gander at the Section of this Agreement labeled “Requests for Re-Prioritization”. If, however, you want to change a deliverable (e.g., change functions or features, or modify a deliverable in a significant or material way), then we will review your requested changes, and contact you (usually, at first, by telephone) to discuss your change requests. If we are able to make the changes you requested, we will provide you with a change order, which once signed by you, will become part of this Agreement.
You acknowledge and agree that AgencyNet reserves the right to re-prioritize the deliverables in a PAL or issue a change order as reasonably necessary to remedy any delay attributable to you (e.g., failure to timely respond to us, failure to stick to deadlines, etc.).
8. Poaching: I Love Your Employees. Are They for Sale (or Maybe Lease)?
Key Discussion Points: In most good relationships both parties are extremely vested. You work closely with one another towards a common goal. Hopefully you like one another. Sometimes you like each other a lot. What happens when your client wants to hire the intelligent, enthusiastic and experienced point contact from your team? How about when you want to hire your perfect client? It’s a sticky issue and one that’s sure to put a kink in any relationship.
We spend a great deal of time and money training our employees and ensuring they stay at the top of their game. We have no doubt you’ll love them—but they are not for sale—so don’t even think about it. (If we gave away our employees, where would that leave us?)
During the term of this Agreement and for a period of one (1) year following the last date on which AgencyNet provides you with any deliverable or Project, you and we both agree that neither of us will (i) solicit or hire any of the other party’s employees, directly or indirectly, or assist or encourage any third party from doing so, or (ii) directly or indirectly request, induce or advise any of the other party’s employees to withdraw, curtail or terminate their relationship with the other party.
9. Promotion and Credit: We’re proud of the work we do—and we want to show it off.
Key Discussion Points: Will you be able to showcase the work? How about the ability to submit it to award sites? Are you working as an outsource partner to another agency(s) – if so, how will the credit be dispersed?
We’re proud of the work we do—and we want to show it off. You agree that we are allowed, in perpetuity and without any restrictions other than those described below, to display the project in the “Portfolio” (or similar) section of our company’s website and on promotional materials, sufficient to demonstrate our talents and the type of work that we did for you. It is agreed that our use will be limited to no more than three (3) screenshots or a video recap of the project, and (where possible) will have links to the project.
Additionally, we agree that we may submit the work under this MSA and/or applicable SOW for various awards in the digital category or its equivalents and will inform you of such submissions where applicable. All submissions of the work under this MSA, whether initiated by you or us, will bear joint credit.
NOTE: Thanks to our good friend Jason Prohaska at Big Spaceship for some of the language on this clause.
10. Payment Schedule.
Key Discussion Points: How much will it cost you in overhead to begin developing the project? Can you afford to cover that until you receive your first payment? Will you be billing in advance? Providing 7-day payment terms? 21 days? 30? What are the opportunity costs associated with taking on this project? Are you walking away from another project to take this one on? Would you suffer financially if the project were terminated mid-development?
Obviously we’re a Digital agency and not a bank. That wouldn’t be so hot nowadays, would it? As such, we will bill you as follows:
- First Payment, 30% of total project invoiced upon execution of the SOW.
- Second Payment, 30% of total project, invoiced after completing the first phase of the SOW.
- Third Payment, 30% of total project, invoiced after completing the third phase of the SOW.
- Final payment, 10% of total project, invoiced upon execution of the project release form.
We’ll ask that you pay all invoices within 7 (ok, 21) days of receipt. That’ll keep our employees well-fed and focused on your work .
If at any time you terminate a Scope of Work without cause or we terminate a Scope of Work for cause, you understand and agree to pay us a cancellation fee equal to twenty percent (20%) of the total cost of the project. You also agree that the cancellation fee is in addition to any other amounts previously paid or payable to us. We further agree that the cancellation fee is not a penalty; instead, it is an amount that the parties believe to be reasonably sufficient to cover AgencyNet’s lost opportunity costs and other intangible costs involved in the shutdown of the project.
About this series:
A number of people have asked me why I decided to share the information contained in this post.
Well, my answer is threefold:
- This part of the business is a drag. We love creative, strategy, innovation, and technology – not law. If we did, we’d all be lawyers (and the world certainly doesn’t need any more of those.)
- If I was an ActionScript developer, I’d develop some slick programmatic motion experiment and open-source it to the community. If I was a designer, I’d develop a killer desktop wallpaper, some cool typography or a Photoshop brush and share it. This is my open-source – hope it’s helpful.
- AgencyNet is a member of The Society of Digital Agencies and I promised the rest of the Board of Directors that I’d take a first pass at creating a starting point on this for the membership to weigh in. Be sure to check SoDA’s Blog in a month or so to see the consensus of the group.
Well, if you’ve made it this far… thanks for reading – I thoroughly enjoyed writing this piece.
DISCLAIMER: While I strongly recommend that these topics be included in your MSA, it’s important to note that I am not an attorney by trade. As such, I would suggest that your contractual language is created or reviewed by an attorney licensed to practice in the state where the contract is governed. If you have additional questions, feel free to reach out.
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