MSP Contracts Explained
Managed Service Provider (MSP) contracts are used by IT businesses in the US and Canada to clearly define the services and responsibilities of both the service provider and the client. These contracts are essential for setting expectations, protecting the rights of both parties and in the event that the terms of the agreement need to be enforced.
MSP contracts typically include a description of the services to be provided, when the services will be delivered, billing details, the duration of the contract and termination fees and details of the parties involved in the contract.
Common elements typically covered in MSP contracts include but are not limited to:
Fees and Invoicing
The contract will typically include the types of services being charged and the fees for those services along with details of how invoices will be issued and payment terms. Sections may be included outlining the terms for increase fees and invoicing above the included number of hours.
Contract Duration
The duration of the contract is typically included with information on any renewal terms .
Termination Clause
Details of how the contract can be terminated by either party is often included as well as termination fees.
Limitation of Liability Clause
MSPs will often try to limit their liability to the extent permitted by law to effectively manage the risks of their liability exposure. A limitation of liability clause serves to protect the provider from being held liable for damages above a certain level. The contract will typically include language indicating that neither party will be held liable for indirect damages or loss of profits.
Confidentiality and Non-Disclosure of Information
The contract may be used to put a Non-Disclosure (NDA) in place to help protect the any sensitive information (data, know-how, intellectual property, etc.) of both the MSP and the client. NDAs are important because protected information can not only include information from the client, but also information from other clients of the MSP that the client might learn of during the term of the contract. It is common for an MSP to have several clients in the same vertical or geographic area. Sensitive data could potentially be shared between clients if the appropriate safeguards are not in place.
Essentials of an MSP Contract Template
So what are the key components every MSP contract template should include? So now that we’ve covered "Why should I have an MSP contract template?" now let’s turn to the "What" and answer the question: "What should be included in the MSP contract template?"
MSP Individual Services
MSP Contracts will almost always have a provision that sets out the scope of services the MSP will provide. It’s important to set out in language that is clear and unambiguous the services that are going to be provided – often these are delineated in a schedule or appendix. Some examples of these types of schedules are Vendor Task Order Schedules or Work Order Schedules. In these schedules, you will see that there are services, technology products or other deliverables that are identified – and that they are set out as separate "tasks" or services for the vendor to perform. When you have an MSP template, these conditions (work order, vendor task order, service details) can be replicated as new contracts are used and so save time and effort when creating these documents. Any entry into and exit from the contract by either party must also be carefully addressed in this section. This section will usually include how either party will enter into or terminate their participation in the contract and it will also set out when a party will no longer be contracted to the term agreed. This is the typical section of the MSP contract template where any details for withdrawal are set out.
Pricing and Payment
The MSP contract template should set out the pricing to be charged for the services being provided. This will generally be an attachment that can be added or removed as needed. It must also set out how the services will be paid for by the client – whether by installments, in full or however else is specific to the industry and the services being provided. The price must also set out any other costs or expenses associated with the services being provided. Along with this must be a section that sets out how clients will be billed for services, when they will be billed and how they should make the payments. While this will usually be set out in the contract, it’s also not uncommon to see it referred to elsewhere on the companies website. With respect to IT Managed service providers, if their contract for services is too long-winded or complicated to understand, the client will not buy into the services or may even try and get out of it without fulfilling their contractual obligations.
Confidentiality
Every MSP contract template should always have a confidentiality section. It should state that the parties to the contract are both required to keep information confidential and to help do this, it should also set out what the procedures are to follow to keep the data protected against unauthorized access, especially when it comes to personal information which is sensitive and generally subject to strict privacy laws. It should also state how long the information that is collected, processed, used and/or disclosed will be kept. This is one of the areas of most contracts that the parties tend to disagree on. To enforce this effectively, data breach provisions must also be included in the contract template. Not all of them will be identical since they will all take into consideration their specific business needs and risk profiles but for the most part, they will be similar: setting out a party’s obligations upon any data breach including process, procedure and schedule.
Termination Clause
It’s important for the MSP contract template to include a termination clause because it will set out the conditions under which the parties can terminate the contract. This is important to the office of legal counsel because it will set out: (1) how to terminate the contract successfully so that there are no lingering obligations or costs to fulfill; (2) cancellation fee amounts and consequences if applicable; (3) breach of contract clauses; and (4) pre-termination obligations of both parties once the contract is terminated and the terms under which the company will be able to renegotiate the contract for further use.
Drafting Effective Service Level Agreements (SLAs)
Should your MSP contract include a Service Level Agreement? Often the answer turns on the extent to which both the MSP and the customer seek explicit and specific performance metrics, targets, and responsibilities. Increasingly, customers are demanding quantifiable measurements for a variety of reasons – to increase assurance they will receive the level of service expected for the price they are paying, to address frustration when they perceive that they were delivered something other than what was advertised ("they promised me the world"), or to obtain accountability in the event a customer believes an MSP did not execute as promised.
Service Level Agreements in MSP contracts can provide important protection to the customer and the MSP. From the customer’s standpoint, the SLA defines the services used by the customer and the responsibilities of the parties in measuring performance. For the MSP, the SLA should carefully spell out the scope of service it has undertaken and define responsibility for measuring the MSP’s performance. The more precise the measuring standards, the less dispute over the measurable results.
What type of metrics should a customer expect from an MSP contract? Metrics commonly include turnaround time, uptime, accuracy, availability, ticket resolution and performance. Each metric may be weighted within a tier system – similar to a grading scale in school – in which the most desirable outcome is weighted highest and the least desirable is weighted lowest. This allows a customer to rank the values of different metrics, and to weigh the data it receives in a way that makes the most sense for its business. It can also help the MSP identify and produce the services the customer values most.
Assigning responsibility is an important part of constructing effective SLAs. Who will measure the ticket response time? Is it the customer, or the MSP? What system will be used to measure this service? All of this must be considered in the SLA.
Service Level Agreements can also contain statement of penalties should the MSP fail to meet the agreed upon performance. Parties sometimes will use credits – in which the MSP will discount a future bill if performance has fallen short. Or they may include incentives, in which customers discount the next bill. For example, an SLA might award a credit for every hour a helpdesk ticket requires over the maximum acceptable down time. On the flipside, the SLA may increase the customer’s credit for the first hour of down time, then decrease that credit if the second hour does not occur to encourage the MSP to address the issue sooner. Under this SLA, the customer benefits should the ticket require a short amount of time while rewarding the MSP with short-period credits so it can focus on the ticket at hand rather than on commercially unproductive tickets that need fixed anyway.
Customers and MSPs might also include volume considerations in an SLA. If a customer’s volume rises and the MSP has not equipped the infrastructure for such a rise, the SLA should protect the MSP from the resulting downtime. Conversely, if the customer consistently consumes over the threshold volume, the SLA may change the terms over time to prepare for or penalize higher-than-expected levels of service. For example, the SLA might go into a "timeout" provision with lower performance scores for the MSPs who exceed the SLA threshold.
The issue of evaluating the performance metrics can be addressed up front by detailing how often the SLA will be evaluated, the method used in the evaluation and the person involved in the process. The SLA can even contemplate a "timeout" period to give the MSP an opportunity to correct any failures, to avoid inappropriate disruptive enforcement of penalties.
The Legal Aspects of MSP Agreements
The legal considerations in MSP contracts should include:
• Ensuring the agreement is consistent with federal and state laws, including anti-kickback laws, Stark law, licensure requirements, coverage and reimbursement rules, and other regulations that govern the application of healthcare services; and
• Providing clear and balanced liability and indemnification clauses, as well as a well-defined dispute resolution process.
The MSP contract template should be drafted in a manner that purports to be consistent with the requirements of the Antikickback Statute, which prohibits payments for the referral of Medicare and Medicaid patients. Can the payer intended in the arrangement be a Federal or State health plan? Then, the Antikickback Statute may apply. Questions that you will want to ask yourself while drafting the MSP contract template, or reviewing the same, would include: 1) does the payer under the arrangement participate in a Federal health program; 2) does the payer have a Third-Party Payer Affiliation (TPA) with a Federal health program; 3) is the ongoing relationship structured as a referral source for other services/business operations; and 4) does the arrangement implicate the Federal Anti-Kickback Statute?
As a general rule, MSP contract template-related liability and indemnification clauses are designed to provide 3rd parties with a path to pursue claims against the provider entity. The provider is invariably paying for services through its commercial/managed care contracts. This liability and indemnification typically allows a 3rd party to proceed against the provider according to the terms of the agreement with a full and clear understanding of the types of information required, the way in which that information will be collected, the parties’ obligations to keep confidential and/or private patient information secure, and the insurance (if any) to be provided by the payer.
Modifying MSP Contract Templates
The customization of MSP contract templates is a crucial step that enables service providers to align the contract with the unique requirements of their clients, ensuring that it meets their specific business needs and strategic ambitions. The process involves assessing the specific needs of a client based on their business industry, size, and objectives, and adapting the template accordingly, without altering the fundamental structure or essential clauses.
For instance, a template MSP contract for an industrial client may require a focus on compliance with health and safety data transfer regulations, while a contract for a healthcare customer would likely need to emphasize the requirements of HIPAA for effective data privacy and protection . Customizing the contract template to include relevant provisions such as liability disclaimers, indemnity clauses, and confidentiality agreements among others, would serve to safeguard both the provider and the client in accordance with the nature of their business activities.
Moreover, the sales process often requires MSP contract templates to be adapted to comply with third-party contractual obligations, particularly in cases where global organizations are working with multiple service providers across different regions. A customer’s headquarters may be located in Europe, for example, while their operations are based out of Asia. Therefore, a one-size-fits-all MSP contract template, which might be appropriate in one jurisdiction, may not be in another. In such instances, MSP contract templates should include provisions to address these differences and afford all relevant stakeholders a "fair and equitable" deal.
Pitfalls to Avoid
Creating the perfect MSP contract template takes time, thought and precise language. While the end product is what most people will want to focus on and rave about, there were many things they could not see. Only an MSP expert will know what may come up later as issues for their business. Even if you follow all of the tips and considerations above, there are some common mistakes that businesses encounter when creating MSP contracts. Most of these concerns can be avoided with some simple planning and clarification.
The first major issue is having unclear terms. This can happen when general business terms are used to describe services. For example, "remote support" is a very vague term that means different things to different people. To clarify, figure out how you will provide remote support and define it within the contract. Will it be remote desktop access? Chat? Screen sharing? Clarifying your terms on the front end saves time explaining it to each new client on the back end.
Another common issue is having missing clauses within a contract. Make sure that any issues that have come up in past situations with clients are covered within your contract so you don’t make the same mistake twice. For instance, if you did not have a problem with data backup before but now do, make sure you include a clause that explicitly explains what your company’s backup policy will be. Otherwise, you will not have any recourse when the client loses important data.
You should also ensure that clauses are properly implemented. You can spend lots of time creating the perfect contract, but if it’s never presented well to the client, it does not matter. The best way to prevent issues with your perfect contract is to ensure it is clearly explained. Implementing the contract with your client is actually the most important step of the process because it is the last chance to get feedback from your client before it goes live. Often times, this is a learning experience for both you and your client, and you can both learn how to better work together moving forward.
Don’t take the creation of your MSP contract template lightly. Even though it’s a lot of work, don’t hurry through it just so you can get started. It is worth putting in the time to look for loopholes in your current contract and refining the language. In the future, this will save you time and money, and help ensure that everyone is on the same page right from the start.
Leveraging Contract Management Software
Contract management software can help you create MSP contracts using intelligent templates. Ingenious builds contracts that help cover your bases every time. They are designed to help you safeguard your business against common pitfalls and prevent litigation. You can store everything you need with contract management tools too. Gone are the days of rifling through cabinets, or struggling with digital file organization. Searchable databases allow you to find exactly what you are looking for , with only a few keystrokes. Grouping documents by client allows you to have an instant read on how much work you have done, and how much remains for each customer. You can transform the way you manage MSP contracts, and you can use technology to do it. Everything comes together easily, and you will be able to keep everything organized, up-to-date, and at your fingertips. Simple changes and easy, digital storage and templates protect you against human error and ensure that you are compliant.