IT and Business Insights for SMB Solution Providers

MSP Sued! Are You Ready?

10 risk management strategies to save your reputation, your mind, and your retirement By Mike Semel

Warren Buffett said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” In a previous ChannelPro article, I wrote about protecting your clients from you. Now we need to talk about protecting you from yourself.

I was an MSP and know that you’ve invested a lot in your company. Hopefully, it’s giving you a good lifestyle, has helped you build a good reputation, and will provide you with a comfortable retirement. But you could lose everything if you are sued. Your best client could quickly turn into your biggest adversary and kill your hopes and dreams.

In January 2020, Involta, an MSP that owns data centers across the U.S., was sued by Boardman Molded Products, after the Ohio manufacturing company fell for a fake invoice phishing scam and lost $1.7 million. The lawsuit said that the MSP should have warned the customer about phishing, that the MSP mishandled the work ticket after the client reported the incident, and that the MSP “was in charge of maintaining a secure environment and was to set security rules accordingly.”

The suit also alleges that the MSP failed to install anti-virus protection on all the customer’s computers, and for two years never delivered the quarterly business reviews (QBRs) that it promised in its managed services agreement. These were simple fundamentals that were in the full control of the MSP.

The lawsuit was not just about what was promised in the MSP’s legal agreement, which contained a lot of fine print. It quotes the MSP’s marketing claims to show potential jurors what the customer was promised.

According to the lawsuit, Involta sold Boardman on the fact it would be their “one-stop shop for all IT needs.” The suit refers to Involta’s website terms and conditions, which said that Involta claimed “there would be no need for any other service providers for any purpose... Let your staff focus on innovation and business-oriented tasks…”

Sound familiar?

Here are 10 steps you need to take right now before you are sued by your best customer, find out your insurance won’t cover you, and watch your business value and retirement fund vaporize.

1. Always use a contract.
Never provide any service—a break/fix repair, assessing a business for free to sell them managed services, or managed services—without a signed written contract.

Your contract should protect your company, state the scope and scale of your work, include any responsibilities shared with the client, and limit your risks.

Don’t think of your contract as an option or a simple piece of paper. Imagine being in court and relying on your contract to protect you from a devastating financial disaster. Never take someone else’s agreement and change their name to yours. Always have your contract created by an attorney familiar with the MSP industry, your business, and the laws of your state. Show your attorney the Involta lawsuit and tell them you don’t ever want to see one with your name on it.

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