Drafting a Winning IT Managed Services Contract

The backbone of effective managed IT services is a well-crafted agreement that protects both customers and providers as they build long-term commercial relationships. Customers receive the services they expect to receive and know how these services are provided. Providers gain clarity on the scope of liability and avoid painful disputes with a customer. Furthermore, both parties are protected from possible lawsuits as all responsibilities are clearly defined.

Erick Simpson, author of the best-selling “Guide to Successful Managed Services Implementation”, gives the following typical structure of a well-thought-out managed services contract:

It provides a high-level description of the services requested by a customer.

It specifies the period for which the contract will remain in force and the termination provisions.

It includes payment dates, amounts and method (for example, ACH (Automated Clearing House) or transactions with a credit card only).

Indicates the provider’s policy on taxes on the services provided.

Defines services specifically excluded from the contract, such as training or programming.

Operating system requirements set standards that the environment must meet in order to qualify for services such as specific applications and their versions, update levels, hardware requirements, etc.

Provides a list of existing users, equipment and services covered by the contract and makes provisions for cases where additional users/equipment/services are added.

Indicates the regularity of software updates for equipment within the scope of managed IT services.

A core element of any managed IT services contract that precisely defines service availability. It is important to cover the following points:

• Service outside daily working hours and normal working time.
• Time period for measuring availability (e.g. daily, monthly, quarterly).
• How to calculate usability.
• The percentage of availability promised by the MSP (managed service provider).
• Consequences of availability failures for both parties.

Documents an MSP’s proactive approach to addressing issues with a customer’s IT infrastructure. In this way, MSP reduces the amount of incidents resulting in increased workflow efficiency.

It reflects the MSP’s ability to prioritize issues and demonstrate quick response and resolution times for service requests.

Limits the circumstances under which the Provider can be held liable for any damages arising from the services, for example lost customer data or damaged equipment.

It records a service provider’s obligation not to disclose any client’s confidential information and vice versa.

Simply having a managed IT services contract does not completely eliminate misunderstandings between customers and providers. Only a contract where legal issues are considered can do so. Below are problem areas of IT managed services contracting that deserve special attention.

• Scope of the agreement
  The provider and the client must pay due attention to the boundaries of their responsibilities to avoid open spaces. Sometimes out-of-scope services are also required. In this case, the parties should agree on how to charge for such services.
• Safety risk mitigation
  Forward-thinking customers and sellers always include insurance provisions in the contract. This allows customers to worry less about the consequences of possible data loss and breaches, and providers can avoid potential lawsuits.
• Contract termination
  The two parties must determine the duration of the managed service contract. Usually, this is 12 or 36 months. It would be ideal for a provider not to allow early termination of the contract, but clients value a certain degree of freedom and should be reassured from a vendor lock-in. Of course, customers should not be allowed to cancel the contract because they are tempted by competitors’ low prices. However, the two parties should discuss the acceptable grounds for termination, the smooth transfer of information from the current provider to a new provider and the penalties for unreasonably early termination of the contract.
• Privacy and confidentiality
  Any breach of confidentiality and privacy leads to a number of legal issues for both the customer and the provider. Hence, the IT managed service contract, a) contain clearly defined limits on the types of information acceptable for general sharing; and b) specify that the terms of the contract must be complied with after the contract is terminated.
• Talent scouting
  This problem is specific to MSPs that do not value their technical experts enough. A customer satisfied with the quality of service can attract technicians. To prevent this, providers should include an out-of-demand clause in the managed services contract.

One characteristic of a good IT managed services contract is its compliance. Customer business strategies and IT needs change and contracts should not be rigid. Therefore, the two parties should meet at least once a year to review the terms of service: if all required services have been provided and all terms and conditions of the contract have been complied with. Furthermore, an experienced MSP will point to the need to change the architecture of the IT infrastructure to make it more logical and easy to use.

A win-win deal should always be driven by the client’s business objectives. Therefore, before starting to build an MSP, an MSP should know these objectives and know the ins and outs of a client’s IT infrastructure. In this case, the customer gets a shaky IT system and the MSP is happy to handle it without applying expensive resources to solve IT problems.