MSA: the wrong answer to the right question

The Master Service Agreement. It helps us secure great talent, regulate our cashflow, and plan for the long term. But is it really as great as it seemed 10 years ago? MSAs are full of loopholes which induce bad governance and ethical issues... In this day and age, is there a better solution?

For over 10 years now, organizations that use a large number of consultants - especially IT consultants - have felt the need to better regulate their consulting costs, choosing to negotiate project costs well in advance.

As a result, the idea of a Master Service Agreement (MSA) was born. Since its conception, it has been applied to all types of consulting: IT, finance, management and strategy, and marketing and communications.

With the observation that it is expensive and ineffective to keep in-house IT experts, many organizations started outsourcing their IT operations, in order to focus on their main enterprise. Subsequently, many technology consulting firms became significantly better established, and many more emerged. For example, Cap Gemini of France and CGI of Canada joined major US companies such as Accenture (formerly Andersen Consulting, the technology consulting wing of Arthur Andersen, a former Big 5 accounting firm, which seized to exist in 2002). IT service companies began to bloom in the early 2000s, and many were even acquired by successful large firms. The MSA became an integral part of agreements between these service providers and their client organizations, establishing a long term relationship and eliminating a number of problems previously faced by these organizations.

It is no secret that in all fields of consulting, the involvement of technology has been increasing exponentially. Nowadays, the company's in-house skills are often insufficient for tasks such as designing an international marketing strategy, optimizing the tax structure of a group, or reorganizing human resources following a merger. The MSA permits executives to plan and budget for these needs by utilizing professionals from trusted firms.

Today, the biggest advantage of the MSA, for both the customer and consulting firm, is that it stabilizes the cashflow. Another advantage for the customer is the fact that the consulting firm could help ease the growth or reduction of the workforce, especially in significant market changes or for urgent or specific projects. The company would not have this flexibility if the consultants were its employees! On the other hand, the consulting firm could mutualize its experts, by 'selling' them to multiple clients. This becomes a problem when due to exclusivity agreements with its customers, the firm (intentionally or unintentionally) obstructs the road for competitors, new entrants, or new business models.

Furthermore, using the MSA, the company seeks not only to bring flexibility to their workforce by outsourcing certain projects to consultants. Its main purpose is to bargain down the hourly rates by negotiating a discount based on sheer volume, while making the consulting firm retain a certain level of service quality (through Service Delivery Frameworks).

On paper, the MSA seems like a good solution to all problems in the relationship between client and consultant. But is this really the case?

Even without submerging deep into the details of these giant contracts (the ethics department would definitely have much to say about certain practices outlined in them), there are several fundamental problems that the MSA does not solve.

Unless the client's project is a perfect "copy and paste" of what has been done by the consulting firm previously, the team assembled is always created spontaneously. The firm has hundreds or even thousands of consultants on the side benches, and it assembles teams for the mandates it receives with little to no regard for the synergy between team members. In addition, this approach requires considering intellectual workers as equivalent to each other, regardless of their speciality.

Here is a true story. A large insurance company hires an experienced engineer to lead a major project involving the company's computer networks. The engineer begins to define the needs of the project, but when it comes to the prickly question of human resources, he finds himself staring the MSA right in the face. He wants to involve a former colleague - someone who has the relevant skills and experience, someone he gets along well with, and someone he can trust. The MSA prevents him from doing this easily. But the project manager isn't a fool - he calls his friend and tells her to send her CV to the MSA manager of the insurance firm in question, making sure to include a slightly exotic competency on it (a software application they developed together, for example). Meanwhile, he notifies the MSA manager that the this project requires an expert with said competency. That's it.

Another true story. A consulting firm manages to learn that a potential client will soon release a tender for a project requiring specific skills. It goes ahead and signs an exclusivity agreement with all independent professionals in the region with that particular skill, promising them a part-time salary if they are inter-office (ie, not placed on the project), and a full-time salary if they are selected. Obviously, the professionals agree, because of the apparent security this deal promises. When the potential client launches the tender, no one else is able to bid for the project, as all the relevant professionals are "held captive" in one of the firms, only because it gained access to inside information and took the opportunity to negotiate a MSA to its advantage. The tender is biased. Furthermore, even if this consulting firm does not get the project, the consultants are stuck in Siberia, with half of what they should be paid, and no option to go work for the competitor that won the tender.

Sadly, the MSA causes serious human problems, brings about ethical and governance issues, and hinders fair and healthy competition between providers. Besides, the tender bidding process is generally extremely cumbersome and complex, which makes it practically inaccessible to small firms and independents. It's a real shame, since they are often more innovative and flexible than large firms, and could bring faster growth and pave the path for progress in whole industries.

Accessing the relevant talent while keeping consulting costs reasonable is a real issue for organizations. And while the MSA was probably a good solution at a time it was invented, new solutions are now available, and 2PS has a particularly innovative one.