During ContractsCon 2023, Shavon Smith joined Mike Whelan live to tear down a biotechnology firm’s Master Services Agreement.
MSAs are flexible agreements for chaotic times. See how this MSA helped a biotech firm during the Covid shutdown.
Watch Smith’s advice on drafting a smart MSA, including:
- Formalizing the relationship between an MSA and Statements of Work,
- Clear terms on the use of subcontractors,
- Non-exclusivity language that allows outside collaboration, and
- A termination clause that doesn’t kill the relationship.
Episode Links
The Contract: Generex Biotechnology Master Services Agreement
Guest’s Links: Website | Email | LinkedIn
Interview Transcript
Mike Whelan In this special live episode, attorney Shavon Smith shares a master services agreement from a biotech company at the beginning of COVID. So let’s tear it down. Today, we’re talking about a particular document that I think is really interesting. Shavon, I got to tell you, the last time that I was here in Miami at this law school, I stood right there and I gave a speech to the Miami Dade Bar Association about my last book, and it was March of 2020, I think. And it was a mess, right? We knew COVID was a thing, but we didn’t know anything about it yet. So all the workers were out there. They had gloves on their hands. Everybody was remember the elbow bump. People were doing the elbow, fist bump. Nobody was wearing masks. We were all touching the same door. I mean, nobody knew how this thing spread. And it was chaos. And I read Michael Lewis’s book recently, the premonition about that period of chaos. And in the middle of all of that chaos, an unknown, there are businesses making deals, and those businesses were making deals to figure out how do we create amidst this chaos, how do we work to solve this problem? That’s what we’re talking about in a document today. We’re going to do a master services agreement. Shovan, before we dig into the specific language, just tell me structurally, what is this thing? What are they trying to do with a document like this?
Shavon Smith Yeah. Thank you so much for having me here. So my name is Shavon Smith. I’m an attorney in D.C. I represent small to medium sized businesses, really serving as their outside general counsel. So this is a document that I frequently see when my clients are providing services to larger corporations. So the master service of the agreement here is essentially, I always like to call it a ticket to do more business with the company. So it becomes the form contract that you sign and then you then win the right to have various statements of work or scopes of work to do additional work with the company. So that’s what this is here, and it is dated March 3rd, which may have been the date of your speech as well.
Mike Whelan Yeah, this was right at the beginning of 2020. So these are two companies that are medical companies that are dealing with, among other things, COVID response. So we’re going to start with the language and we’ll get that background. We’ll go to the recitals at the beginning. You’ve got highlighted Section A, What’s the language in there that you’re seeing? How were they using the recitals in this document? Do you think it’s effective for the way a master services agreement should be written?
Shavon Smith It is, I think and should we read it? Okay. So Equifax and its affiliate, as defined in Appendix one, offer various services of anti-genetic epitope discovery and validation of potential peptide vaccine products for infectious disease and cancer, computational immunology algorithms in that service.
Mike Whelan I did one, but I made you read that , so I didn’t have to do any of those things because I don’t know what the heck you just said.
Shavon Smith But I think it’s important because it’s setting the stage for they are developing something. Obviously we didn’t know everything that we know now about COVID, but they knew enough to put the right terms in there about what they were developing and the purpose of this master services agreement.
Mike Whelan All right. So a master services agreement, we’ve done a couple of these on a Teardown Show before, but we’ve done them for software agreements. And so in those software agreements, you see we’re going to give you software and then there’s going to be a bit. But in those situations, so much is known about, you know, they’re making guarantees about we’re going to have 0.01% downtime or whatever in these agreements. This is very different. These are two companies that are dealing with chaos and they use the language over and over again, time to time, from time to time, from time to time. It’s like a will-they won’t-they rom-com. You don’t know when they’re going to get together and do actual work. So let’s jump to the agreement then. So this is, if I’m understanding correctly, to ask the dumb question as I do, this is setting up this is like the document at the top of a pyramid, right? That this will cover every other deal that comes after that. And all those other deals are sort of subject to that. Like, what’s the relationship between this document and the other documents that we’re going to talk about?
Shavon Smith So this is kind of like the part of the contract document. It’s the leading document, and then the subsequent documents become part of the contract. But I think you made a good point that the term from time to time appears here because a lot of a master services agreement is things are unknown. So you may find this agreement in 2020 or maybe staffing to a larger company and their needs change, the market changes the economy, changes to what that actually looks like changes. Your agreement remains the same, but the scope of what you’re actually doing, the change.
Mike Whelan So looking at the language, I mean, it says here in 1.1 conflict of terms, if there is any conflict between the terms and conditions in disagreement, agreement terms and conditions in the statement of work, the statement of work will control. So that seems to define the relationship. Is that clear the way they’ve written this?
Shavon Smith I think it is clear the way that they’ve written it. Sometimes you’ll have a hierarchy of what controls the invoice. The various statements of work. If there is an addendum to a statement of work, the levels of what control is in the contract. But I think that this is pretty clear. And I think it’s important because a subsequent statement of work could vastly alter understanding, because it could be three years after we drafted this MSA to do work together and now we know something different or we need to kind of change some of those terms.
Mike Whelan Let me take it down to Section 1.5, because again, the relationship that we’re establishing here is here are two medical companies at the beginning of COVID being ordered by Pfizer, who’s being ordered by governments to create product. And they don’t know what that product is. They’re going to conferences in Miami and elbow bumping. I mean, just nobody has any idea. And so they give the option to subcontract. In 1.5 is the subcontracting: provider can subcontract any of its obligations under this agreement. But you got to give ten days prior notice that you’re going to use the contractor. And then basically the subcontractor is subject to all the terms of this agreement. So presumably this company can also go further and enter a new agreement. But again, in that relationship, this master services agreement dominates even that third relationship.
Shavon Smith Right. And I think that’s important in this context because we have unknowns, we have these statements of works coming out. And so maybe the company doesn’t know the scope of their ability or the type of contract of the type of labor they may mean to fulfill this contract. So the ability to subcontract, which obviously the main client here, having the ability to ten days to vet, look in and reject in particular potential subcontractor.
Mike Whelan Yeah we talked about this, you and I previously that government contracts, a lot of times the scope changes so fast and the deals are so big that the risk that this company is taking on to say yeah I’ll provide the solution to COVID, even though nobody knew what it was, is a lot of risk to take on. So this ability to subcontract means they don’t have to scale up this giant team. They can go find people. All right. Well, let’s jump to the statement of work thing. So again, this is pretty basic. Hi to the law school students and in the room, I’m with you. Okay. So this document dominates and then there’s from time to time they’re going to get together in that rom-com deal and do these statements of work. They’re going to do individual transactions. What do you think about the language about the nature of the statements of work?
Shavon Smith I think it lays out kind of what needs to be in the statement of work, the services, the terms of delivery, estimated completion, the types of things that need to be in the statement of work so specific enough so that a statement or work isn’t something vague or just a one liner, but because maybe they don’t know what those statements of work will look like, it provides enough detail for the parties to refer back to when drafting this statement.
Mike Whelan And I’m looking through this and I mean, maybe I’m crazy, but I don’t see anything about a change order. And I think I mentioned to you before I worked in transportation before going to law school. And you know, a change order is like crucial if these guys have got a lot going on. How do you see in here how if a given statement of work has conflict and it doesn’t work in; what kind of language are you seeing that they can change things?
Shavon Smith So there is a line in here. Each amendment must be signed by authorized representative of the ordering party. So if they need to change a specific statement of work, then you would then have the parties amended as you would the contract.
Mike Whelan Got it. So this all establishes the relationship and we’re now down into what, the third, fourth page, and then we start getting into intellectual property. We’ve talked about that in other episodes before. Who owns what is really important to establish, especially in a medical that I remember they give in this contract. They basically say you can go and work with other companies that are somewhat similar but not exactly the same. But you get to keep your rights. We get to keep our rights, which takes us down to 4.4. The non exclusivity they mention in the recitals that this is a company that deals with vaccine research, but also cancer research and device research. I mean, they’re doing a lot of stuff. It seems like if you’ve got this open-ended agreement that who knows what the heck you’re going to work on. If I’m that company, I don’t want to surrender my ability to do work with other people. I don’t want to lose because I develop something with you that I don’t even know what it is yet my ability to serve in the future. We’re in a panic moment. What do you think about the non exclusivity section in 4.4?
Shavon Smith I think all those things that are true, but I also think from the companies standpoint, because of what they were developing, it was so important that maybe you would have one is an exclusivity. So you’re not trying to race to market with three other companies as well. And I’ve represented researchers before and a lot of times they actually do have some sort of exclusivity on a particular type of drug that they’re developing as well.
Mike Whelan So jump it down. I want to go down to the term and termination and for reference in the episode when we when we post this episode. We edited it. We’ll have the highlights as we as we normally do. And also we’ll have this document over at lawinsider.com/resources so you can see this contract. For the folks at home, I believe we have a contract that we can send out to people as well for you all. We’ll definitely try to get the language in here. I want to jump down to the term and termination. My favorite part of the termination is there’s a 6-4 that says if people go bankrupt. I just think it’s fascinating that in this deal, they’re like, either of us could just implode in this deal. So here’s what happens if that happens. But you highlighted 6-1, 6-2 and 6-3, which goes to the term, the termination at will and the termination of statements of work. These individual things, it incorporates this two year period. Right. We’re going to start on this effective date. It’ll last until the two years from the date it completed to termination again, unless people go bankrupt and all these other things that happen and anybody can kill a statement of work for any reason with 15 days-notice to the provider, what do you think about the language in the term and termination?
Shavon Smith Sure. And I’ll read 6.2: Ordering party may terminate this agreement and or statement of work for any reason upon 15 days notice of the provider. And it’s interesting because you could terminate a statement of work. So either maybe something did go bad, but the parties have decided that the relationship itself is important enough that we’re not terminating the entire deal between us, but we have to terminate this particular statement of work. Maybe there is a convenience aspect to it that a person no longer wants whatever they were buying. So I think, I appreciate that it’s clear that the termination between the actual MSA and the termination between any statement of work is separated.
Mike Whelan Well with this document obviously we’re talking about big picture things. And I want to step back and ask you a question about the big picture by telling you about Snoop Dogg. Snoop read this contract to me. I’m going to post this on my LinkedIn. Find me on LinkedIn. I’ll show you where I got this. But in driving down here today, I used a tool that has an AI voice that will read documents, and they had an AI voice of Snoop Dogg. So literally, Snoop read this contract. I made it this morning. And the funniest thing about Snoop reading this document to me was he was so it like the AI voice was annoyed when it had to read 15 and then 15, you know, where it was like written out in letters 15. And then it had the number. So like, there’s Snoop is like 15, 15, you know, he’s like, annoyed by it. And I realize Snoop ain’t reading this document, okay, Snoop will never read this document. And in my work, you know, it was the guys on the docks that were doing statements of work and work orders and purchase orders and change orders. And most you know, you saw this with Covid in that book, The Premonition Michael Lewis talks about, you know, people on the ground fighting with the CDC because the CDC was so remote. I’m looking at a document like this. I feel like maybe we missed an opportunity here to talk about principles, to talk about why are we doing this? And it gets really legalistic, I feel, who is this for? Who’s going to read the master services agreement because it ain’t Snoop and ain’t that guy on the dock. That’s not happening. Who’s this for?
Shavon Smith I would say it’s just for the party. And I don’t know what other third party would have interest. We have an interest in what they were creating and how they created it. So as long as the parties are able to operate harmoniously between each other to create that, no one thinks about the agreements that got them to the back thing that they got at CBS. But obviously there were plenty of them between parties and probably lots of disputes between them about who owned what or what version of it. And I think, even with this particular agreement, because we didn’t know a lot about Covid when they find this on March 3rd, I would imagine there had been lots of statements of work and revisions because of various strains and changes to the vaccine.
Mike Whelan Yeah, I feel fairly confident. Two months after this agreement was signed, there was a new one. Just as an aside, we just released an e-book from Sonya Shaykhoun about using the recital section, which we all overlook. Right. It’s just a quick recitation of what’s going on. And she wrote that we should use the recital section to tell the deal story. And, and I’m imagining a scenario where whoever wrote this really wrote this for the guys on the dock and says, this is what we’re trying to or at least those people’s managers, that these are the guiding principles that are leading us to these decisions. This is what we’re after. And to write it so clearly that literally the people who are working in the city, small town in California, can figure out what to do with these kinds of agreements.
Shavon Smith And that’s missing here. I think, as I read from the recital we started with earlier, was a very technical probably pulling out something they’ve used in years and years for cancer research or whatever they’ve done in the past. And I think an agreement like this would have definitely benefited from we don’t have all the information we need to have for this agreement, but we know as much as we can know at this moment. And I think that something like that would have been absolutely helpful.
Mike Whelan And yeah, it requires a unique level of adaptability, which again, I think it’s different than the MSA as we talked about before in tech industries where a lot more was predictable. So I appreciate you bringing this to us. Shovan for people who want to learn more about you, your practice, how you dig into documents like this, what’s the best way to connect with you?
Shavon Smith Sure. My website, sjslawfirm.com. I’m all over LinkedIn all the time. My name is Shovan Smith. Excited to be here and talk about contract.
Mike Whelan Well, make sure to include that information at the website at lawinsider.com/resources. And part of what I’m hoping will happen with all of you here and at home watching these episodes so that you realize you can do this. We’d love to have guests like you all on the Contract Teardown Show, so please email us at community@lawinsider.com. We will see you all next time. Thank you.
Shavon Smith Thank you.
Tags: Contract Law, Contract Drafting, MSA