Order of Precedence Clause

A company enters into a contract with a service provider to supply IT consulting services. The relationship is governed by a Master Services Agreement (MSA), with individual projects defined in separate Statements of Work (SOW). The MSA includes standard terms like payment terms, confidentiality, and dispute resolution, while each SOW outlines the specifics for each project, including project timelines, deliverables, and costs.

The MSA and the SOW for a particular project have conflicting terms regarding the payment schedule. The MSA specifies that payments should be made in monthly installments, while the SOW for that specific project indicates that payments will be based on project milestones (i.e., upon completion of certain deliverables).

Now, will MSA be followed or SOW ?

FOR SOLUTION, WE LOOK OUT FOR "ORDER OF PRECEDENCE CLAUSE"        

Order of Precedence Clause:

"In the event of any inconsistency or conflict between the terms of this Master Services Agreement (MSA) and the Statement of Work (SOW) related to a specific project, the following order of precedence shall apply: (i) The Master Services Agreement (MSA); (ii) The Statement of Work (SOW) for the relevant project.

In the case of a conflict, the terms of the MSA shall prevail, unless the SOW explicitly modifies or overrides those terms in writing and such modification is agreed upon by both parties."

In this scenario, if there is a disagreement over the payment schedule, the terms of the MSA will generally prevail because it is listed first in the order of precedence. However, if the parties intend for the SOW to supersede the MSA in certain circumstances, such as project-based payment terms, they can include explicit language in the SOW stating that it overrides the MSA in that regard.

For example, the SOW could specify:

"Notwithstanding the payment terms in the MSA, the payment for this project shall be made upon completion of the defined milestones as outlined in this SOW."

This would clearly override the MSA in that context, as long as both parties agree to this modification.

In the realm of contracts, clarity is king. The more unambiguous the terms, the smoother the execution. Among the many clauses that ensure this clarity, the Order of Precedence Clause stands as a sentinel against confusion, particularly when multiple documents govern the same transaction.

An Order of Precedence Clause dictates the hierarchy of contractual documents. When there’s a conflict or inconsistency between documents, this clause identifies which one prevails. It’s a safeguard, ensuring that disputes over interpretation are minimized.

The Order of Precedence Clause is a powerful tool to streamline contract governance. However, its effectiveness depends on careful drafting and alignment with the parties' objectives. As professionals navigating the intricate world of contracts, it’s our responsibility to leverage such clauses to promote clarity and mitigate risks.

What’s your experience with the Order of Precedence Clause? Have you encountered any unique challenges or creative uses? Let’s continue the conversation in the comments below.

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