Managed service agreements are living, dynamic documents intended to be continually edited and updated to reflect an MSP’s current service offerings, contractual requirements, and payment terms. For many MSPs, contracts auto-renew for existing clients. However, when new services are added, such as VoIP, security awareness training, and threat detection and remediation, for instance, those changes along with the new price for the added services are often not reflected in the agreements. This creates a disparity that is exposed when a client’s service needs change or the business environment is impacted.
Now is the time for managed service providers to reevaluate their agreements and make sure their business is protected by up-to-date contractual language. The COVID-19 pandemic has brought renewed emphasis for MSPs to effectively communicate to their clients what services they will receive and what is required from them. In doing so, three primary areas of the agreement should be addressed:
- Service offerings
- Contract language
- Payment terms
Service Offerings
It is common for clients to not fully understand what services they receive under their managed service agreement. Service offerings should be laid out early on in the agreement and in such a way that both parties have a mutual understanding of what services are being delivered. Below is an example from NinjaRMM’s managed service agreement for MSPs that illustrates what an up-to-date contract might look like. Bringing your service offerings up to date within your agreements will help your clients understand what they can expect from you and reduce confusion when they require additional services.
*Images and contract text reproduced from NinjaRMM’s MSA for MSPs
Contract Language
As we have seen most recently with the coronavirus pandemic, external forces outside of your control can quickly impact your business and that of your clients. It is important that your managed service agreement take these potential changes into account and clearly define expectations of the business relationship, including what clients should expect and most importantly how your MSP is protected.
Below are examples of contractual language that can be used in a managed service agreement. In drafting these clauses, I sat down with an attorney to make sure they were the right language for the present time as well as the future. These clauses or variations of them should be part of any managed service agreement. The contractual language in these clauses is meant to provide adequate coverage for your clients, taking into account situations outside of the control of your MSP while ensuring protections for all parties.
Neither party shall be liable for any failure of or delay in performance of its obligations under this Agreement to the extent such failure or delay is due to circumstances beyond its reasonable control, including, without limitation, acts of God, acts of a public enemy, pandemics, fires, floods, wars, civil disturbances, sabotage, accidents, insurrections, terrorism, blockades, embargoes, storms, explosions, labor disputes (whether or not the employees’ demands are reasonable and within the party’s power to satisfy), acts of any governmental body, failure or delay of third parties or governmental bodies from whom approvals, authorizations, licenses, franchises or permits must be obtained, or inability to obtain labor, materials, equipment, or transportation or illness of MSP’s technical staff (collectively referred to herein as “Force Majeure”). Each party shall use reasonable efforts to minimize the duration and consequences of any failure of or delay in performance resulting from a Force Majeure event.
Payment Terms
When circumstances necessitate a change in a client’s billing, having previously agreed upon terms in the agreement makes the process easier on both parties. The clauses below are examples of what could be added to bolster your agreement for times when billing reductions become necessary. Having a plan in writing and already outlined in your signed agreement makes it much easier for a client to agree to a change on your terms and abide by it.
Late fees will not be charged under an agreed scenario below:
Change in number of users at an amount of $____ per user. If reduction is on a per user basis, as staff returns to work the per user fee will be added back to the monthly fee and prorated as of the date of return if mid-month.
A flat fee change per month. If the change is a flat fee per month then billing will resume upon Client’s resumption of services as mutually agreed between MSP and Client. This may be an evaluation between the parties of a gradual resumption of workers and network activity or an immediate resumption of workers and network activity.
No one wants to discount work, but the time may come when you have to reduce or defer payments in order to help a client keep their business operational. This is something many MSPs are experiencing right now as businesses have been forced to close for an indiscernible amount of time due to government-mandated shutdowns. When facing this kind of uncertainty, having deferment or discount language already laid out in your agreement can keep you and your business ahead of the curve.
Deferred billing by a ________% over __months. Then beginning after ___ months the deferred amount to be added back in subsequent months by ___% of deferred amount or as mutually agreed. For example: if MSP defers $1,000 per month. Then after the ___number of months passes 25% of the $1,000 is added back each month until fully paid.
A common problem for MSPs is determining how and when to receive payments from clients and making sure these requirements are clearly understood. Stating the payment terms clearly in your agreement and going over these terms with the client reduces the chance of problems receiving payments later on. It is imperative that the payment terms set forth be enforced. This is even more important when a client may want to reduce what they pay or when they pay due to some unforeseen event.
For many clients, IT support and associated services are just as important as keeping the lights on and paying the electric bill. Therefore, MSPs need to make it clear that they are an essential component of their client’s operations and must be paid on time and in full unless there have been negotiated changes in payment terms previously agreed upon. Below is an example of contract language related to a client’s failure of pay that can be included in a managed service agreement:
Failure to pay: If payment is not received by the first of the month for that month of service MSP reserves the right to put a hold on rendering on-site and remote services until monthly fee has been paid, provided MSP gives a five (5) business day notice of late payment.
If Client fails to make payment for any services or items purchased, and such failure continues for fifteen (15) days, interest shall accrue on any amount due at the rate of 12% per annum until paid. In the event collection processes are instituted to collect any amounts due from Client, Client shall pay the costs of collection plus reasonable attorney fees.
If your agreement has fallen behind your offerings or business needs in terms of service offerings to clients, contract language, and payment terms, then now is the time to update it. The draft language included in this post gives MSPs added protections and the ability to be pre-emptive when a client requests changes to service or billing all the while ensuring their business is protected.
TOM WATSON is NinjaRMM’s channel chief advisor and a former MSP owner.
