IT and Business Insights for SMB Solution Providers

Contract Clauses Every Channel Pro Should Consider

Including certain language in master service agreements can help protect MSPs from costly litigation. By Megan Santosus

HAVING SOLID LEGAL PROTECTION in master service agreements between provider and client is an essential aspect of running a successful MSP business. To safeguard against expensive and time-consuming litigation, MSPs would be to wise to make sure their MSAs include a few often-overlooked clauses.

While a termination clause is standard, for example, a section that addresses what happens if a client discontinues service without cause is important as well, along with a financial remedy, says Thomas Stanton, an attorney and former channel pro with Stanton IP Law in Tampa, Fla.

Stanton cautions against asking for the full amount of the outstanding contract upon termination, however, as trying to collect the entirety of a three- or five-year contract if a client cancels after only one year “could be seen as excessive.” Instead, Stanton recommends inserting language with limits, but “enough of a bite to deter someone from canceling without cause,” like so: “Termination without cause will result in the lesser of [a] 12-month charge at the current billing rate or the number of months remaining in the current term, whichever is less.”

Stanton also recommends protecting yourself against clients who seek to end an agreement by slashing devices under management. “If a client reduces the service level lower than a percentage of the original signed contract—say 60 percent of the value—it should be deemed a termination of the agreement without cause,” he says, which in turn would trigger the termination payment clause.

Another clause to consider deals with client satisfaction, says Bradley Gross, an attorney and managed services legal expert in Weston, Fla. He recommends clearly stating your right to declare that an agreement has been breached, and potentially terminate the contract, “if the client engages in an activity that renders it impractical or unreasonable or imprudent to provide the services to the client.” That can protect an MSP from performing unreasonable tasks not specifically spelled out in the agreement, such as moving furniture or subjecting its employees to a hostile environment.

“[This] clause in your contract requires the client to act in a reasonable and prudent way,” Gross says. “If the client doesn’t do so, you have the right to terminate the contract for cause.”

Finally, a force majeure clause that releases MSPs from liability in the event of an Act of God, such as a storm resulting in power outages that disrupt service levels, is standard in business agreements. Joshua Liberman, president of IT provider Net Sciences Inc., in Albuquerque, N.M., recommends including other unpredictable circumstances: Tariffs, embargoes, and parts shortages are top possibilities.

“We can’t be held to costs we’ve agreed to if they increase beyond our control,” Liberman says. “Most [contracts] don’t include those things and they are worth including.”

About the Author

Megan Santosus's picture

Megan Santosus is a Boston-based freelance writer and frequent contributor to The ChannelPro Network.

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