New York MSAs: Crush Unfair Terms, Avoid Costly Disputes

Last reviewed: 2025-08-19. Jurisdiction: New York.

What is a Master Services Agreement (MSA)?

A Master Services Agreement is the foundational contract that governs your ongoing business relationship—pricing mechanics, intellectual property, confidentiality, service levels, risk allocation, and dispute procedures—while individual statements of work (SOWs) cover project-specific details. In New York, the MSA’s words are the playbook a court will rely on, so clarity and precision matter.

Top pressure points in New York MSAs

• Scope and SOW hierarchy: State whether the MSA controls over conflicting SOW terms and how changes are approved.
• Payment terms and setoff: Define invoicing, late charges, dispute windows, and whether either party can withhold or set off amounts.
• Performance standards: Tie service levels to measurable metrics, with credits or specific remedies that do not waive other rights.
• Change control: Use a written change order process to prevent scope creep and unapproved costs.
• Subcontracting and assignment: Limit subcontracting without consent; address change-of-control and assignment to affiliates or in a sale.
• Insurance: Require appropriate lines and limits, name additional insureds where applicable, and align with indemnity obligations.

Indemnification: Align risk with control

Push for fault-based indemnities targeted to the risks each party controls—third-party IP infringement, bodily injury/property damage, and data security incidents, for example. Avoid open-ended indemnities for your counterparty’s internal losses. Clarify defense obligations, tender procedures, cooperation, and how to handle conflicts when there are overlapping claims.

Limitation of liability: Cap the downside

Use a negotiated cap tied to fees or another rational baseline and specify carve-outs narrowly. Typical carve-outs include a party’s indemnity obligations for third-party claims, willful misconduct, and confidentiality or data security breaches. Exclude indirect, incidental, consequential, special, and punitive damages to prevent runaway exposure, and be precise about lost profits and data loss. Confirm whether the cap applies per claim or in the aggregate as intended. In New York, courts often respect negotiated limits between sophisticated parties, subject to exceptions such as gross negligence, willful misconduct, statutory restrictions, or unconscionability.

Intellectual property: Own what you must, license what you can

For deliverables, decide between a work-made-for-hire with assignment (memorialized in writing) and a license-back, or use a license-grant model with ownership retained by the provider. Reserve and define background IP. For software and cloud services, spell out license scope, usage restrictions, open-source components, and decompilation limits. Address infringement remedies (repair, replace, procure a license, or refund), with exclusions for misuse and non-vendor combinations.

Data, privacy, and security

Map the data processed and apply appropriate safeguards. Incorporate a data processing addendum when personal data is involved and allocate responsibilities for notices and consumer requests. Require security standards aligned with the service (for example, SOC 2 or ISO frameworks where appropriate), prompt incident notice, cooperation on forensics, and breach cost allocation. Limit data retention, require secure disposal, and prohibit data mining beyond contractual purposes.

Warranties that actually protect you

Include performance warranties tied to documentation, malware-free delivery, and compliance with law in the jurisdictions where services are performed. Make the remedy meaningful: re-performance, replacement, or refund without waiving other rights. If you are the provider, disclaim implied warranties to the extent permitted by law; if you are the customer, preserve them strategically.

Payment mechanics that prevent disputes

Detail invoice timing, required backup, dispute procedures, approval workflows, and late-charge methodology. Clarify reimbursable expenses, rate changes, and taxes. Consider audit rights for time-and-materials or pass-through costs. Make price protections and most-favored pricing explicit if needed.

Termination and exit strategy

Define termination-for-cause triggers and cure procedures. Consider convenience termination with equitable wind-down costs. On exit, require transition assistance, cooperation to transfer services or knowledge, return or secure destruction of data, and continued license rights necessary to operate. Tie final payments to delivery of transition milestones and materials.

Dispute resolution built to avoid court

Set a stepped process: executive-level negotiation, then mediation, then litigation or arbitration if necessary. Choose governing law and venue—New York law is frequently selected for commercial MSAs. If using arbitration, specify the administering body, seat, number of arbitrators, confidentiality, discovery scope, and injunctive relief carve-outs. Include fee-shifting only if you are confident in your position, and consider small-claims carve-outs for efficiency.

Boilerplate that isn’t boilerplate

Pay attention to notices (including electronic), force majeure (addressing cyber and supply-chain events), non-solicitation, publicity rights, independent contractor status, export controls, anti-bribery compliance, and survival of key provisions after termination. Ensure order of precedence among the MSA, schedules, and SOWs is explicit.

Red flags that signal unfair terms

• Unlimited liability or carve-outs so broad they swallow the cap.
• One-way indemnities or IP ownership grabs unrelated to the deal’s value.
• Vague service descriptions without measurable acceptance criteria.
• Unilateral termination or price increases without checks.
• Broad audit rights without confidentiality safeguards.
• Mandatory arbitration with excessive fees or distant venues, or jury trial waivers presented as non-negotiable.

Negotiation tactics that work in New York deals

• Trade caps and carve-outs: tighten carve-outs in exchange for a higher cap, or vice versa.
• Use examples and metrics: turn abstract obligations into testable criteria.
• Tie risk to insurance: align indemnities and caps with available coverage.
• Stage commitments: pilot first, then scale, with pricing and SLAs adjusting accordingly.
• Document rationale: memorialize what the parties intended to reduce later ambiguity.

Why New York governing law is common

New York courts often enforce clear contractual risk allocations between sophisticated parties, subject to defenses like unconscionability, gross negligence, willful misconduct, or specific statutes. See, for example, a New York Court of Appeals decision discussing enforcement of contractual limitations of liability between sophisticated parties (2021 decision). Choice-of-law and forum-selection clauses are also frequently upheld when negotiated at arm’s length (2018 decision), though outcomes depend on the facts and statutory constraints.

FAQ

Are limitation of liability clauses enforceable in New York?

Often yes between sophisticated parties, but courts may not enforce limits for gross negligence, willful misconduct, or where statutes prohibit it.

Should an MSA or an SOW control on conflicts?

State the order of precedence expressly. Many deals make the MSA control except where an SOW explicitly overrides identified sections.

Can I use one indemnity for everything?

A targeted, fault-based approach is safer: separate IP, third-party injury/property damage, and data/security indemnities with clear exclusions.

Do I need New York-specific data clauses?

Address applicable federal and state laws, add a data processing addendum, and set prompt breach notice and cooperation requirements.

References

• New York Court of Appeals decision (2021) on contractual limitations of liability
• New York Court of Appeals decision (2018) on forum selection clauses

Legal disclaimer

This blog is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Laws and outcomes vary based on specific facts and may change. Consult counsel about your situation and current New York law.