Alphabet Soup: Contracts 101

Many of our clients are startups led by their founders. Before starting their company, many founders have the same exposure to contracts as the general population… which is often limited. When key decision-makers in an organization have a consistent understanding of different contracts and their purposes, they can make the contracting process as efficient as possible.

So, let’s dive in to the acronyms and clarify each of the major contract types that our customers generally process.

1.       MSA

Master Service Agreement; alternatively, Master Subscription Agreement

Summary

This serves as an umbrella contract between two organizations, documenting the core terms for future agreements.

Relative length

Long (sometimes 60+ pages)

Specificity

Because the MSA covers terms that should be applicable well into the future, it doesn’t include project-specific details.

Typical sections

-          Term length and termination conditions

-          Contract breach terms and penalties

-          Indemnification and limitations of liability

-          Insurance requirements

-          Standard service-level agreements or response times

-          Personnel requirements (e.g., qualifications, such as background checks or restrictions on subcontracting or offshoring)

-          Data retention policy and description of how to dispose of confidential information at the end of the agreement

-          Governing jurisdiction

 

2.       BAA

Business Associate Agreement

Summary

A BAA is a required contract when complying with HIPAA. A “business associate” partners with a Covered Entity, which comes into contact with Protected Health Information (PHI) through the nature of their business.

Relative Length

Short! Ideally no more than three pages

Specificity

A BAA formalizes the relationship between a Covered Entity and a Business Associate, meaning it can also be an umbrella contract, transcending the project-to-project details. Sometimes BAAs are included as an exhibit to an MSA.

Typical sections

HHS provides a sample BAA, which can help you understand the essential content.

-          Definition of terms

-          Obligations of Business Associate

-          Permitted uses and disclosures of PHI

-          Data breach expectations

-          Term length and termination conditions

 

3.       NDA

Non-Disclosure Agreement; alternatively, a Confidentiality Agreement (CA) or Proprietary Information Agreement (PIA)

Summary

Often a first step in the contracting process, an NDA protects entities that want to share detailed information (financials, trade secrets, intellectual property, etc.) with each other but want to limit the risk of that information being used inappropriately.

Relative length

Short (2-6 pages)

Specificity

NDAs can be specific or broad, depending on the parties and the situation. It can make sense to change the terms of an NDA without changing the terms of an MSA or a BAA between the same entities.

Typical sections

-          Who is included in the NDA

-          Term length and termination conditions

-          Contract breach terms and penalties

-          Definition of what is confidential

-          Description of how to dispose of confidential information at the end of the agreement

-          Definition of exceptions to confidentiality (e.g., if information is publicly available)

-          Obligations of the information recipient

-          Governing jurisdiction

 

4.       SOW

Statement of Work; alternatively, Scope of Work

Summary

A project-specific contract that details key expectations, such as requirements, duties, and pricing.

Relative length

Varies – can be a page or two or upwards of 10 pages

Specificity

The SOW is the opportunity to get very specific about the details of a project, whether it’s a person or team providing services, a software implementation, or a pilot.

Typical sections

-          Term length and termination conditions

-          Purpose/objectives of the project

-          Requirements for success, including people, software, and hardware

-          Location where work will be completed

-          Key deliverables or milestones, including a schedule of expected deadlines

-          Pricing and payment terms

 

Watch for our next posts in this series – the benefits of customized contract templates and the value of moving away from legalese.