Stand Alone Agreement Vs. Master Agreement: Significant Differences

What is a Stand Alone Agreement

A stand alone agreement, or single document contract, is a legal document that operates independently of any other agreements between the parties. In other words, a stand alone agreement is not tied to another agreement and does not depend on any other agreement to be legally effective. Stand alone agreements are frequently used by businesses in their business ventures and as a way to formalize the terms and conditions of a specific transaction. These agreements can be useful for a variety of purposes and can govern a contract for the sale of goods or services, a participation agreement, a joint venture agreement, a loan agreement, a license agreement, disclosing proprietary information, and many other types of simple or complex business deals. To be enforceable, a stand alone agreement must contain all of the essential pricing terms. If the pricing is omitted, the pricing term can be filled in by default based on a fixed price term set by law, trade usage, or by an objective formula (e.g . pricing as determined by a practical method agreed to by the parties).
There are certain situations where it is pragmatic to have a stand alone agreement. A stand alone agreement can be used when it is not necessary to have the agreement part of a larger agreement or master agreement. It can also be used when negotiations of a complex agreement are continuing, but there is a need to document an agreement on certain details related to the deal. For example, two businesses can enter into a stand alone agreement under certain terms and conditions related to a supplies agreement even if the parties have not yet ironed out all of the details of their business deal. It can also be used with joint ventures or similar deals to cover one small piece of a larger deal, such as outsourcing a portion of the work or responsibility. Finally, a stand alone agreement can also be used when it would be impractical to use a larger agreement, such as when the parties have a simple short term or one-off deal.

Understanding Master Agreements

While a stand alone agreement may be appropriate for single transactions between non-repeating parties, in the case of an ongoing business relationship, or where the project is complex and extending over months or years, the parties may be more inclined to enter into a master agreement. A master agreement is a comprehensive legal document that governs a series of transactions or related contracts during a period of time. Upon execution of the master agreement, the parties execute a separate stand alone agreement for each task order or scope of work they wish to perform as contemplated in the master agreement. The stand alone agreement incorporates the terms and conditions of the master agreement, as modified pursuant to terms of the specific scope of work. The stand alone agreement may be executed under the master agreement in the manner set forth in the master agreement (i.e., by issuance of a task order, issuance of a work order, or mutual execution). At the conclusion of all transactions contemplated by the master agreement, the parties generally execute the final release and waiver of claims under such agreement to release each other of any and all claims.

Characteristics of a Master Agreement

There are several key differences between stand alone agreements and master agreements. They include:
Significance of the Parties
Stand alone agreements may be governed by the law of the jurisdiction where the party is domiciled or where the work is performed (this will vary depending on the type of agreement). This is not generally a problem provided there are adequate principles of conflict of law available so that the parties have certainty in their rights and obligations in the jurisdictions in question.
A master agreement, by contrast, is usually entered into by parties that have long term commercial relationships. As a result, the potential for an international dispute over jurisdiction or applicable law may not be so significant for parties to a master agreement. Parties to a master agreement may be able to negotiate to have disputes resolved in a unified forum.
Purpose of the Agreement
Usually, a stand alone agreement will deal with a single transaction, sale or other unit. Some stand alone agreements may contain non-standard provisions that may not be suitable for a wider context.
Stand alone agreements can also be useful when there is a disagreement over changes to the terms of business or the outcome of renegotiation. A stand alone agreement can provide the parties with enhanced clarity about their rights and obligations.
In contrast, a master agreement is carefully designed to apply over the long term to all the parties’ relationships at any point in the future. A master agreement is therefore flexible enough to accommodate future changes and the parties’ needs over time. A well-drafted master agreement can also avoid disputes by containing clear dispute resolution procedures and an agreed process for changes to the terms used.

Critical Differences Between a Stand Alone Agreement and a Master Agreement

In circumstances in which the parties do not have a pre-existing trading relationship, or that trading relationship is coming to an end, but one or both parties would like to preserve the benefits of their contractual relationship with respect to particular trades, it is important to draft clear and complete and enforceable contracts covering those trades. Stand alone agreements provide, often, for a more efficient way to contract than master agreements. Where a master agreement is not in place, it is important that the parties incorporate in their trade confirmations all of the necessary parts of the contract that will be binding upon the parties for the relevant trade. In contrast, a stand alone agreement irreversibly merges each trade into the agreement itself. The language in the antecedent clauses of a master agreement may be ambivalent on the issue of whether the terms as stated in a trade confirmation supersede the terms in the master agreement or vice versa. The parties may prefer to avoid, from the very outset of their business relationship, having to engage in future negotiations regarding what is in the trade confirmation and what is incorporated into the confirmation from the master agreement. Parties may find this area of confusion and dispute between them as a source of friction in their relationship when the master agreement is silent on whether the trade confirmation, or its terms, supersedes the terms in the master agreement or vice versa. Another advantage of a stand alone agreement, in comparison to a master agreement, is that, because it is a single introductory document, it may be a simpler, less expensive, and more efficient document to use for just one or two transactions, than would be a master agreement.

Benefits of Stand Alone Agreements

Master Agreements can be preferable to Stand Alone Agreements for longer-term engagements even on one off transactions that will be conducted beneficially as an ongoing relationship. A master agreement structure allows the parties to set forth the agreed upon relationship and their intentions, clarification of terms and conditions between the parties. Master agreements streamline the drafting and negotiation process, by anticipating future requirements in the agreement to better manage those relationships over time. Master agreements allow for anticipated uncertainty over time that arises from changes in the business environment through a living document that can adapt to unforeseen changes over time.
A master agreement allows the parties to put in place a comprehensive agreement governing the entire relationship over time , taking into account the uncertainties of the relationship with substantive context for understanding to avoid misunderstandings over time. In the context of life science research collaborations, which may last longer than 10 years and involve scientific research, both parties desire to address the relationship for all future transactions between the parties. In these cases, a single agreement is preferable for all transactions. Individual agreements may be inefficient, particularly for transactions constituting an overall relationship.

Advantages of Master Agreements

There are several examples of where it may be appropriate to enter into a stand alone agreement rather than a master agreement. The following list provides examples of where to focus your contract drafting efforts to minimize the frequency with which you will need to revisit a client to negotiate a contract modification:

1. Limited Scope Engagement

If the scope of the arrangement is not likely to expand, you should strongly consider a stand alone agreement rather than a master agreement. For example, where the client simply needs implementation of software, and the time estimate for the project is fairly short, you should consider a stand alone agreement because (assuming terms are acceptable to both parties), these types of agreements are generally easier to negotiate.

2. No Form Agreement

Another example of when to use a stand alone agreement as opposed to a master agreement is when the client does not have a form agreement. Many businesses require their outside vendors to use the client’s form agreement. If the client does not have a form agreement (such as a hospital), it may be more appropriate to use a stand alone agreement.

3. Specific Project or Array of Services

Similarly, where the relationship between your company and the client is limited to a specific project or for a set array of services, then a stand alone agreement will likely be more appropriate than a master agreement.

4. Low Margin Services

Where the transaction involves services with a high labor component, such as professional services, then a stand alone agreement may be preferable since the services are often transactional.

5. Simple Relationship

Finally, if the relationship between the parties is simple, a stand alone agreement is likely to be the easier choice from a negotiating perspective.

When to Use a Stand Alone Agreement Vs. A Master Agreement

The decision to utilize a stand alone agreement, instead of a master agreement, is fraught with such legal land mines as waiver of liability, indemnification and limitation of liability. Many times, the intention of the parties is not clear in these agreements. Without proper inclusion of intentional contract language issues or clear guidance of intention, statutory interpretation may take a precedent over common law principles that the parties were relying upon.
Waiver of Liability
In situations where a waiver of liability is to be included, it is always recommended that not only be the condition of use, but the scope should be limited to gross negligence and strict liability. While many agreements contain broad waiver of any and all liability, a court may interpret that as including those damages that are recoverable in tort, such as economic damages, or damages that are not foreseeable. It is important to strictly limit the scope of the damages that are waived in a waiver of liability.
Indemnification, Limitation of Liability and Making Contractual Intent Clear
To the extent that an agreement is intended to be the "exclusive remedy," it should be clear that a waiver of liability is part of that exclusive remedy, and that if indemnification is provided as a remedy, it should be specifically included, and it should be drafted clearly so that it can be determined whether indemnification is the contractual limit of liability. To the extent that inclusive and exclusive remedies are intended, care should be taken to specifically spell out the intent, to avoid potential waiver when things go wrong.

Legal Ramifications of Choosing the Right Agreements

To illustrate the practical differences between stand alone and master agreements, let’s consider a few hypothetical scenarios.
Case Study 1 – A Master Agreement for a Supplier
A manufacturing company and its biggest supplier need to enter into an agreement to determine their commercial relationship. The relationship encompasses delivery of goods in large batches, purchase of other goods as needed, and blanket purchase orders for certain goods all over several months and quarters. In addition to governing these core issues, the supplier wants to include a provision allowing it to terminate the agreement within 90 days without cause in the event a competitor manufacturer is awarded a large contract. Given these needs, the parties decide they want this relationship governed by a single contract. They enter into a master agreement. The master agreement includes all the provisions the manufacturing company requires to accurately govern the delivery and pricing of goods. The agreement also includes a provision granting the supplier the unilateral right to terminate in 90 days if a competitor wins a particular contract. The master agreement is effective for one year, but allows for either party to renew the agreement for additional rolling one-year terms upon written notice. In this case, although the master agreement serves the parties’ needs and documents the core relationship between them , the manufacturing company may find itself in an unfavorable position if the supplier heavies the relationship and receives the award on a competing contract. The manufacturing company now could lose its supplier as the supplier terminates the agreement on 90 days’ notice. The manufacturing company might be forced to pay punitive prices to more expensive suppliers to protect itself from being terminated by its now-former supplier on 90 days’ notice.
Case Study 2 – A Stand Alone Agreement for a Supplier
A chip manufacturer and its largest customer want to enter into an agreement for pricing chips over the next year. The chip manufacturer is willing to charge a substantially lower price in quarter 1, when it believes that demand will be the highest, and increase pricing in quarter 2 due to a predicted decrease in demand. However, in quarters 3 and 4, the chip manufacturer believes that it will have excess inventory that it will need to move, and it will be willing to offer a much lower price on all chips purchased in those quarters. When faced with such a complicated pricing scenario, the two companies opt to enter into separate agreements for each quarter. Due to the increasing price of chips over the course of the one-year period, the customer will have to consider whether to buy all the chips it needs in quarter 1, when the price will be lowest and availability should be highest, or whether to wait until quarters 3 and 4 when the price will be higher but perhaps still profitably below the cost of a new supplier. The agreements are effective for one year, and the parties have no right to take other factors such as quantity of chips or competitor awards in their pricing.