Master Service Agreement (MSA) and Statement of Work (SOW): what are they and how are they applied in IT staff augmentation?

Need to grow your product team and decided to hire foreign contractors? While it allows your company to find qualified workers and reduce costs, it is crucial to know about all the legalities involved – and contracts such as MSA, SOW, and NDA. These acronyms establish different parts of your relationship with these employees. In this article, you will know what SOWs and MSAs are and the difference between both – also if an NDA is needed. Keep reading!

Different ways to expand your team

Before we get into the legal part of expanding your team, let’s talk about the different ways to expand your team. It should be noted that all of these items will need MSAs and SOWs to determine the terms of the partnership.

Hire directly

This is the old fashioned way to expand an IT team. Directly hiring your employees is the most expensive approach because your company will be responsible for all of the recruitment costs – and also for the whole process.

Contract work

If you want to hire employees to work for a specified period, contract work is one of the expansion solutions for your team. It offers more flexibility for both the company and the worker – however, this model is the one with less stability of the list.

Contingency search

Want to reduce your recruitment costs by outsourcing the process? With a contingency search, you’ll need a talent agency to find suitable candidates. With this approach, you will pay the recruiter only when the employee is hired – fees vary from 12.5% to 20% of the employee’s first-year salary.

Retainer search

Another possibility for outsourcing recruitment is using a retained search firm. Here, you will need to pay the recruiting agency before the candidate is hired, with fees up to 50% of the annual salary. However, it can be an effective way to find the right workers.

Full-time-like engineers managed by Ubiminds

How about reducing costs by hiring IT talent from other countries to work remotely? You can outsource the recruitment for an agency such as Ubiminds. This is the cheapest option available for expanding your team, with reduced costs for hiring qualified employees – and you won’t be responsible for the recruiting process.

What are MSAs and what are they for? 

The first contract that you need to know is the Master Services Agreement (MSA). Generally speaking, it is an agreement between two parties or more that establishes the terms and conditions of a business relationship or an ongoing project.

By setting the bounds of a contractual relationship, the MSA offers a long-term approach. As a result, the renegotiation of additional contracts won’t be needed – in fact, the initial agreement can be used in every future contract.

Not only the MSA is the framework of this partnership, but it also offers the flexibility to make any adaptations to it. After all, this type of contract’s function is to streamline processes. 

You can find a Master Services Agreement template online. But what should an MSA in IT Outsourcing cover? Here is a list of the crucial points of Ubiminds’ MSAs:

Scope of work

Firstly, the MSA needs to determine the scope of work so both parties will know what kind of work will be done – and, of course, for how much time. For instance, a company that can perform software development, design, and support services on a non-exclusive basis.

Moreover, this section also sets up the professional standards of the partnership – including which industry standards will be followed. When expanding your team with an independent contractor, the MSA defines the employment levels, rates, and qualifications of the employees.

Fees, invoices, and payment

As you can expect, the MSA also needs to establish the financial side of the partnership. This section allows both parties to set prices, payment schedules, and payment schedules for the services provided.

Moreover, this section determines the interest rate in case the contractor fails to pay for the services after getting the invoice. For instance, a monthly interest rate for an undisputed invoice.

This section also sets rules for how the contract can suspend or terminate the provision of all services when the contractor is in default with payment. Also, it defines the basis of how any invoice disputes should be settled.

Intellectual Property

Another crucial point of an MSA is the definition of every intellectual property regarding the partnership. This includes patents, copyright, trade secrets, and every other property. Also, it is the section that establishes the right to prepare and exploit any derivative works.

In addition, it is the part that determines whether the contracted has to offer assistance to perfect the intellectual property. It should be noted that this doesn’t apply to any skills, techniques, and materials owned by this party.

Furthermore, this section determines the confidentiality of any information disclosed by any means. Customer lists and relationships, as well as product blueprints and other data, are also contemplated. Since it is an MSA for IT companies, the protection of user information’s guidelines is also described.

To conclude, this section is responsible for acknowledging whether the contractor will need to purchase any hardware. Also, how the contracted party should use it.

Warranties

The final section of the MSA is where all the warranties are determined. For instance, the originality of all work is assured here, while the non-violation of any arrangements between the contracted and former employers, clients, and entities.

Moreover, compliance with applicable laws, rules, and regulations is defined here. As well as the tech talent house needs to obtain any required permits, certificates, licenses, and approvals to perform any services – this applies to all the countries where the partnership will outsource tech talent.

What are SOWs and how do they work?

The second contract type that is used for outsourcing tech teams is the Statement of Work (SOW). With a specific approach, an SOW is an agreement between two parties regarding a specific project.

While MSAs focus on the broad side of the partnership, SOWs offer more details about what will be done – and also what will not. For this reason, it will set the expectations of both parties.

You can find an SOW template for Software Development, Project Management, and other specific services. To help you know what are the crucial points of an SOW in IT, here is how Ubiminds does it:

Scope

Firstly, an SOW should set the project’s scope. Here, the extent of the work that will be done is defined. For instance, the contracted’s personnel performing software development services for the contractor.

Terms and conditions

Furthermore, the SOW also defines the terms and conditions of the partnership. This section sets the project’s duration and also the conditions for an eventual extension of the contract – provided it isn’t terminated earlier.

For outsourced tech teams, this section determines how many professionals will be involved in the project and how many they will work hours per month. A common example is one software engineer with a monthly workload of 160 hours.

Rates and exemptions

Concluding the list of SOW must-haves is the section defining rates and exemptions of the project. Every financial aspect of the partnership is contained here, determining how the payment will be done and transactional costs – and, of course, the total value of the SOW.

Do I need a separate NDA or not?

One of the most common questions we receive in Ubiminds is: what about the Non-Disclosure Agreement (NDS)? This contract is an agreement regarding the secrecy of information and has the function of preventing it to be shared with a third party.

In order to outsource tech workers, you’ll always need to use MSAs and SOWs. However, NDAs aren’t crucial to this type of partnership. After all, tech talent agencies such as Ubiminds offer these clauses in their contracts.

Sure, you can ask for a separate NDA. But is it really needed? Since it would only add more bureaucracy to the process, writing and signing one more contract is seen as superfluous – after all, it takes time from what really matters.

How the engagement to Ubiminds works

You’ve read about contracts such as SOWs and MSAs and different ways to expand your tech team. Of all the mentioned possibilities, Ubimind’s recruitment model is the most viable financially – but how is the engagement to this talent powerhouse?

Ubiminds recruit developers from Brazil, which are 30% to 50% cheaper than hiring locally in the United States. Also, your company won’t have to pay management fees and worry about these employees’ vacations.

Furthermore, the talent powerhouse recruits qualified IT workers and prepare them to be a part of your team. This approach offers the perfect balance between quality and cost reduction.

And, of course, Ubiminds use the appropriate MSAs and SOWs so this process will be easier. Want to know more about how our approach can offer better performance and results for your team? Let’s talk about it!

Thiago Reis

Dad, Marketer, Salesman, Guitar Player. Self-starter, agile learner, and people-oriented, Thiago Reis is passionate about shaping the future of tech. Specialized in the Education Sector, previously excelling in Telecom, ISPs, and Digital Agencies.