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A very common question for many people, including some legal professionals, is when to use a master service contract and when to use a service contract. Furthermore, inquiries often arise regarding the main differences between these different types of contracts. This article aims to clarify these and other doubts, promoting the correct use of such contracts.

A contract is an agreement of wills between two or more parties, with the purpose of establishing the rights and obligations of the parties in relation to an object to be contracted between them. For instance, if Company A intends to buy a batch of computers from Company B, they can execute a sales contract or a goods supply contract that establishes the rules for the transaction.

When purchasing the batch of computers, Company A will require the services of Company C for regular maintenance on all acquired computers. To this end, due to service continuity, Company A may draft a services contract to be signed with Company C, the purpose of which will be maintenance services by Company C, duly remunerated by Company A.

Conversely, Company A's purchasing sector has already enlisted Company D, which, upon request from Company A or whenever necessary, will supply computer accessories, such as monitors, mouses, headsets, USB hubs, keyboards and so on. This provision will occur at Company A's discretion, that is, on a recurring basis. This scenario is ideal for the implementation of the master contract for goods supply. Had the scenario involved a recurrent service rather than a supply of goods, a master services contract would be appropriate.

Therefore, the master services or goods supply contract is a very important tool for establishing overarching guidelines for services or goods supply which occur on a recurring, intermittent or on-demand basis.

Another implementation for the master contract is when a single service provider or goods supplier provides multiple types of services or items on a regular basis. For instance, consider a security, cleaning, and services company, which starts to provide intermittent services for specific periods of time, for property security, security for visiting executives, valets, event cleaning, and the like.

The great advantage of master contracts over the preparation of a set of service provision or goods supply contracts is that every common clause, such as responsibilities of the parties, liability limitations, unforeseeable circumstances or force majeure, data protection, anti-corruption, notifications, novation, assignment, subcontracting, etc. are negotiated once, rather than for each contract to be signed. This streamlines negotiation, especially in complex cases or when dealing with a highly intricate object.

The master contract is usually complemented by purchase orders or service orders. The purchase order or service order typically establishes (i) the description of the service or good, (ii) the value or price, (iii) the payment method, and (iv) delivery time. However, other details may be added. Therefore, taking the master contract as a rule, the purchase order or service order will always serve to support the service or supply of recurring goods to be provided by a single service provider or goods supplier to a given company.

The table below illustrates the main characteristics for each case:

As identified above, the term is a very important aspect regarding master contracts. Depending on the company's contract policy and/or the negotiation made with the service provider or the goods supplier, the term of the master contract generally leans towards an indefinite period or for a determined period, with a unilateral termination clause, with advanced notification by the other party. The risk of making the master contracts with determinable term and no automatic renewal is having, during its course, a purchase order or service order with an object whose delivery term extends beyond the master contract’s end date.

As a result, it is equally important that the master contract includes a clause establishing which should prevail in the event of a conflict between its text and that of the purchase order or service order.

Another important aspect to consider is the start of the master contract. Currently, with the increasing prevalence of electronically sign contracts, and depending on the number of parties, there may be a gap of weeks between the contract's stated date and the dates on which the parties electronically signed it. Therefore, it is highly recommended that the master contract clarifies in one of its paragraphs the effective date of the beginning of the contract. As a rule, the contract takes effect on the stated date.