The most valuable part of your MSP may not be the tangibles. Sure, your clients may sign up with your firm based on your team’s technical capabilities and the IT tools that allow them to deliver so many vital services. But those are usually not the things investors and financial experts are scrutinizing the most when they are considering a purchase or merger proposal.
Skilled technicians are almost always a worthwhile investment, and the buildings, vehicles, and technology that supports your business clients in multiple vertical markets across large geographical areas may be just as vital to the operation. However, the most critical piece of the “IT services pie” is often made of paper (though digital documents are gaining traction).
MSP contracts represent long-term financial commitments and help you secure those highly sought-after recurring revenue streams that bolster your business. The potential income detailed in those documents is the true value of the organization. Firms with the most substantial and airtight MSP contracts are typically worth much more than those that rely on project work or operate on month-to-month verbal agreements. Just as a channel, M&A expert how they assess the value of an IT services business.
Your CFO, accountant, and other company stakeholders should also be big fans of MSP contracts. When your clients run into cash flow issues, the suppliers without viable agreements in place tend to get paid last (if at all). MSP contracts provide a security blanket. If a customer runs into tough times, with this type of agreement in place, your company will have legal recourse to recover at least partial payment for services rendered.
Avoid the cookie-cutter approach to MSP contracts
This is where things get tricky. IT services are complicated, and creating an MSP contract that covers all the do’s and don’ts for providers, and their clients are best left to an attorney with industry experience. Of course, business owners should have insight into the process and collaborate on some, if not most, of the details in these agreements.
No two client engagements are the same. An MSP contract designed for a local manufacturer may not work for a restaurant chain with locations in different cities and states (or countries). While the standard stipulations in the master agreement may apply, significant revisions may be required to address a variety of factors, including the services to be provided, timelines, and compliance concerns.
Your team’s comprehension of specific facets of each MSP contract is essential. Owners and employees must understand their obligations and be able to accurately convey details and responsibilities to clients, end-users, and any peers or other suppliers listed in the agreement.
The seven essential components of an MSP contract
An MSA (Managed Services Agreement) is the foundation or roadmap of your client relationships, deliverables, and business value. Virtually every implementation, onsite repair, support call, and invoice you send is based on terms and conditions listed in your MSP contracts − that is, if those documents are meticulously crafted and correctly authorized.
The preparation process, as mentioned previously, should be a collaborative effort between business owners and attorneys. Of course, prospective clients may also request changes in an MSP contract, and their approval might depend on how well you and your legal team can negotiate essential details. This is where lawyers earn their money.
Your MSP contracts must be resilient. Expertly crafted, these documents outline each party’s deliverables and prescribe remedies for inaction, effectively defining the relationship and rules for conducting business. The balance is critical. MSP contracts must equally protect providers and their clients by including detailed provisions written in clear language.
As with any business relationship, there should be a fair exchange between parties, and these documents establish the gives and takes for each side. However, to be effective, providers must ensure their MSP contracts contain several criteria, including:
1. Scope of work
What work is expected to be performed, and when? A statement of work (SOW) clearly defines the services to be delivered and timelines, which helps avoid misunderstandings for all parties.
2. A baseline
The MSP contract should document the “starting state” of the client’s IT infrastructure. A customer signature establishes the “known” condition and status of equipment and various systems, minimizing potential disputes over new issues that appear during the life of the agreement. The baseline accurately represents the current IT environment.
This is the “projects section” of an MSP contract, where providers detail all work that must be completed prior to beginning standard service delivery. From hardware and network upgrades to new security and disaster recovery/business continuity solutions, these are the types of improvements that reset a client’s systems to an acceptable standard.
Which party is accountable for what? This section in the MSP contract is where legal experts earn their money. Many attorneys use boilerplate text that protects your business from false or frivolous claims, cyberattacks, and unwarranted lawsuits.
5. Responsibilities (for the client, MSP, and others)
Who handles what? The MSP contract must clearly define responsibilities for all parties involved in the agreement, including roles for managing issues in various scenarios.
6. Client data expectations
In this era of compliance, your MSP contracts should include metrics such as Recovery Point Objectives (RPOs) and Recovery Time Objectives (RTOs) and other information management goals. With an “implied duty of care” around data, your agreements should detail all related processes, timelines, and responsibilities.
7. Incident response plans
No cybersecurity measure is impenetrable. Even best-in-class defenses can be infiltrated if a hacker has time, determination, and ingenuity. With most states requiring providers to notify clients and affected individuals of security breaches, including an incident response plan in each MSP contract can lessen the angst of your employees, clients, and other parties (including cyber liability insurance companies).
MSP contracts are the ultimate “promise keepers.” Each team member should understand the expectations of service delivery, including response times and responsibilities, and other obligations outlined in each client agreement. These guidelines keep everyone honest and help ensure timely payment for services delivered.
Do your current MSP contracts provide those guarantees? If not, consult an attorney with IT services experience and make sure to include the seven criteria covered above.