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Master Agreements versus One-at-a-Time Agreements
When your San Diego or California business has an ongoing relationship with another business — for services or for product — you have a few choices in terms of how to set up the contracts. Probably the most common is a series of one-at-a-time contracts. Often, purchase order form contracts are like this. The order for goods or services is on the front, with the contract “boilerplate” on the back.
Another option is to create a so-called “master agreement” — a much longer contract — that covers all the foreseeable eventualities, and then the parties arrange their day-to-day relationship with work or product orders that relate back to the master agreement. You will need a good San Diego corporate lawyer to offer advice and counsel on whether a master agreement arrangement is advantageous for your business. Here is a quick discussion.
San Diego Master Agreements: When a Master Agreement Might be Advantageous
Most commonly, master agreements are used for service contracts, but they can be useful for unique product delivery, too. We can see an example of the former from the Fifth Circuit case of In re: Larry Doiron, Inc., No. 16-30217 (US Fed. 5th Cir. January 11, 2018) (en banc). For the details of the case, see here. In that case, Apache Corporation owned and operated various gas and oil wells located off the coast of Louisiana and Texas. The wells were in deep water and generally accessible only via stationary production platforms. In 2005, Apache entered into a master service contract with a repair and construction service company called Specialty Rental Tools & Supply, L.L.P. (“Specialty Rental”). Thereafter, Apache engaged the services of Specialty Rental based on work orders.
This example highlights a few of the circumstances in which a master agreement can be advantageous. Such circumstances include:
- Expected long-term relationship
- Multiple locations for delivery of services or goods
- Multiple affiliated or subsidiary companies to which services or goods are to be provided
- Services — or goods — delivered are expected to be similar, but still unique
- Services — or goods — provided trigger “large” legal issues such as indemnification, liability for negligent performance, regulatory compliance and the like
- Confidentiality issues are implicated
- And more
Essentially, a master service type arrangement is needed or advantageous when a two-page contract cannot adequately address and allocate all the foreseeable legal risks.
San Diego Master Agreements: Advantages of Master Agreement Arrangements
There are many advantages to using a master agreement arrangement.
- The master agreement is negotiated once and is expected to suffice for at least several years of the business relationship. This is time and cost efficient.
- The day-to-day work is simplified since that work is based on a work or product order. This is also time and cost efficient since the work or product order itself might be complicated; those hammering out the work or product order do not have be distracted by larger legal issues.
- If changes or amendments are needed, the lawyers and upper management can work on the master agreement without too much interference with the work or product orders. Again, this is time and cost efficient. A single master agreement requires only one centralized team of managers, attorneys, engineers, accountants, etc., to review and make the necessary changes for all parts of the company and affiliates.
- A single master agreement ensures uniformity.
San Diego Master Agreements: Disadvantages
There are some disadvantages, too. One of the major potential disadvantages is a situation in which the local circumstances impact the larger master agreement. In the case described above, the legal issue being resolved was whether the Apache-Specialty Rental master service contract was a maritime contract or not. For reasons not pertinent to our discussion, Apache and Specialty Rental intended and expected the master service contract to NOT be a maritime contract; but the manner in which the local work order was executed put the larger contract at risk. The other two main disadvantages are complacency and overuse.
Contact San Diego Corporate Law Today
If you would like more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email. Mr. Leonard has been named a “Rising Star” three years running by SuperLawyers.com and “Best of the Bar” by the San Diego Business Journal.
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