A Managed Services Agreement–What Is It?
A managed services agreement is a binding contract between businesses that details the terms of outsourcing management, support, or services in either a technical (IT), product (e.g., software or hardware), or other business capacity. The agreement allows the business or businesses using the outsourced services to maintain control over the resources used while relying on the other business for specific services for which it is compensated. It is often used to outline the following: Managed service providers (MSPs) in technical fields (primarily in IT) offer multiple tiers of service agreements to provide options and value for their customers. This tiered approach allows the customers to select the level of service they need; however, the MSP provides the technical services and support within the plan with the same expectation of risk mitigation and efficient resolution . When a particular service is over the budget of a service level agreement (SLA), the outsource provider or MSP will discuss options with the customer to treat the matter as an out-of-scope project. While the cost of managed solutions is often lower than hiring one or two full-time employees to perform the same job function or functions, it is still important to read the agreement carefully – as a lower cost does not equate to reduced liability when things go wrong. The managed services agreement is critical to defining the parameters of the relationship, and should include as many of the following clauses as seem appropriate: It is important to note that a managed services agreement typically does not cover enterprise agreements which are generally more comprehensive in scope including all of the components and clauses listed above, whereas managed services agreements are limited and tend to focus on selected ones.
Managed Services Agreement Components
At a minimum, it should spell out the precise services (items, tasks, projects, etc.) in detail to be provided with respect to each solution in order to deliver the "Managed Services." Be sure to have a clear description for each solution at hand. In my experience, the exact description of the existing infrastructure or what is in scope is vital to managing expectations with respect to deliverables and payment.
When providing Managed Services, service providers have other metrics to consider. These include levels of service with regard to response times, resolutions, up-times, and availability, amongst others. Additionally, there should be specified remedies for the failure to meet such metrics under various thresholds. Further, if you will be measuring client metrics as part of the Managed Services, the parameters for those metrics should also be set forth, in very specific terms, as well as any related remedies for inaccurate measurements. There is no room for ambiguity in an arrangement where fees are based on these metrics.
Another key component when it comes to Managed Services is payment. As managed services are usually built, priced, and budgeted as monthly, recurring fees, the timing and calculation of the monthly payments should be very clear in terms of amount and payment arrangements. In addition to the specifics relative to the monthly fee, the artisan’s percentage of the monthly rate should be very specific as well.
Why You Should Personalize Your Agreement
A managed services agreement is a document intended to solidify the terms of the relationship and responsibilities between client and provider. However, it is not a "one size fits all" document. A customized agreement can help ensure that specific needs are met and that terms can be enforced in case of a dispute.
An agreement that is not tailored to fit the precise situation of the parties may end up lacking important details necessary to protect either party. For example, in some cases, the provider may wish to be relieved of responsibility for certain types of breaches and liabilities. In other cases, the client may seek to limit the provider’s liability.
Some of the other details that a customized agreement can address include:
When a managed services agreement is customized to the specific needs of both parties, it can help reduce conflicts, enforce terms, and more quickly and efficiently resolve disputes.
Managed Services Agreement Common Mistakes
Here are a number of the most common pitfalls in drafting and executing managed services agreements.
A limited service offering
Make sure to scope the agreement broadly enough to include all services that might be offered to the customer, and make sure the wording in the agreement provides it. You should also consider including wording that allows the service provider to add to the list of covered services from time to time for competitive reasons, provided the expansion of the list does not materially impact the customer’s use of the services or the pricing for the services.
An express obligation to maintain and protect customer data
This is often tied to data security obligations which are themselves often overbroad and leave the service provider with too much exposure. The service provider should cover compliance with data breach notice obligations (which it expects to receive from its internal providers) but not with the underlying cause of a data breach, except to the extent it can prove that the breach was caused by the service provider, its employees, agents or subcontractors and not by the customer.
Sole remedy and liability caps
Tying everything up in the way of liability caps and remedies is a must for anybody providing a managed service. However, those caps must be "real" from a commercial perspective. The liability caps cannot just be a throwaway sentence. There must be something that can be lost by the service provider under the liability cap. A service provider must face the possibility of being liable to the customer for the cap (potentially a significant amount) or else it has no real consequence. Getting the balance right is difficult.
Failure to talk about these issues
Some of these concepts will be laid out clearly in the agreement. Others will only arise on the live version or will be simply assumed by either side, so spending time upfront coming to a consensus on these issues is worthwhile.
Managed Services Agreement Legal Issues
Beyond any directives a business may have for their managed services, there are also legal considerations that need to be taken into account. These can be the laws and regulations that govern the particular industry you are in and where you are based, the specific legal role you want your managed service provider (MSP) to have, and so forth. An MSP could potentially be a joint controller of personal data in some situations rather than a processor, which may affect the kinds of responsibilities they have for compliance with data protection law. There are also some common issues to be aware of. Liability is one area that businesses and managed service providers should carefully define in their service agreements. The ability to legally disclaim liability may be different in the jurisdictions where the MSP operates and also where the customer is based. It may even vary depending on what they are disclaimed for , highlighting how important it is for these limitations to be clearly explained. In the event the MSP is a joint controller who suffers a personal data breach and damages the customer, liability may still rest with the MSP, but defenses arising from the liability of a joint controller may come into play. Aside from liability and data protection, there are other legal considerations that could be relevant depending on circumstances. There is also the option to incorporate some of the technical aspects into the service agreement to show the practical side of a response to a scenario, potentially with links to the more detailed documents describing the scope and processes for how the MSP would implement the technical measures for the scenario.
Negotiating a Managed Services Agreement: Helpful Hints
The initial negotiation will often begin with the vendor providing the customer with a standard form MSA. This document is supposed to represent a starting point and should be reviewed on its own merits.
A good first step in the negotiation is to have the customer identify the critical issues or areas of the agreement that are important to them. These concerns can be grouped by priority:
With these priorities in hand, the customer can begin to draft comments for the vendor. It is important to avoid making multiple suggested changes to the same provision, as this can be counterproductive. Simply identify the issue and present the customer’s suggestions for a compromise.
Both the customer and vendor need to have an open mind during the contract negotiation process. Both sides should continue to look for areas of common ground and seek a "win/win" solution. Effective negotiation does not necessarily mean that both sides leave the table having largely identical or contradictory terms agreed to. It may simply mean that there is a mutual understanding as to the terms and provisions of the MSA.
Although it may seem to be an inconvenience to have to explain the customer’s position over and over, make clear during talks that the customer has a duty to protect its business interests (and those of the vendor). Remaining firm in this respect while remaining open to the vendor’s stance will help ensure that any final contract is workable for everyone.
Managed Services Agreement Sample Template and Resources
The first step in overcoming an incomplete managed services agreement is to compare your agreement to a sample managed services agreement template. You need not start this process from scratch.
Some places to find sample managed services agreement templates are:
MSP Alliance. The MSP Alliance publishes a free template for a managed services agreement. In addition, it provides a managed services contract certification process and other resources for MSPs. The mySMBgroup. As I have described before, mySMBgroup provides a free template for a managed services agreement. It, too, provides other resources for MSPs. GoodCloudComputing.com. GoodCloudComputing.com provides a "managed services agreement kit" that includes a template and a guide for how to customize the template. The kit is not free, but it is larger than the samples available from other sources.
As you consider these sample managed services agreements , you should also consider other common resources that may help you draft a managed services agreement. For example:
ITIL. For many IT providers, ITIL (Information Technology Infrastructure Library) is the framework to follow when providing IT services. MSPs who follow ITIL (and their customers) often want their managed services agreement to reflect their ITIL processes. SLA. An IT service provider often guarantees service levels to its customers. Those service levels are often reflected in a service level agreement (SLA). If your business model includes providing guaranteed service levels, your managed services agreement will not be complete unless it includes an SLA (or at least references where it can be found).
These are just a few of the places you can turn to for help drafting a thorough managed services agreement.