United States: Structuring Managed Service Provider Agreements

Last Updated: February 27 2017
Article by Brian Kirkpatrick Esq

The number and complexity of managed services in the information technology space continue to expand. Accordingly, Managed Service Providers (MSP) may struggle with implementing an agreement structure that fits their needs. MSP lawyers likely work with their clients at some point to restructure the MSP standard contract or draft a new MSP template agreement altogether. The following are three MSP document structures that work well:

Modular Approach

MSPs with robust services worthy of terms and conditions being defined for each service can benefit from an agreement stack that begins with the MSP's MSA, including the familiar general sections such as limitations of damages, indemnities, termination conditions, and choice of law. As part of the MSA or structured as a separate module, there can be an attachment that outlines special terms and conditions pertaining the MSP's specific general offerings. Then, additional modules can be drafted, but reserved, that include terms and conditions for each robust offering such as offering cybersecurity as a services, hosting services, or even cloud storage services. Here, the customer only has to review terms that are relevant to the particular engagement.

Using a modular approach with a master services agreement that includes general and specific terms, then reserving modular agreements can empower the MSP to provide a custom contract stack to its customers, limit discussion and negotiation to only relevant issues, and improve contract execution efficiency for larger engagements.

Statement-of-Work Approach

MSPs that provide more custom oriented services can benefit from using a statement-of-work (SOW) approach. This approach uses a master services agreement and then a SOW attachment. This approach differs from the typical SOW approach where an intentionally abbreviated agreement is used in tandem with a SOW template at the end of the contract. Problems can arise by 1) abbreviating the contact terms to ease the execution burden of the customer, which may skimp on essential or important terms, 2) changing terms for each engagement leading to conflicts among multiple signed agreements - especially in overlapping engagements, and 3) forcing the MSP customer to read or compare each new SOW agreement for inconsistencies. 

Instead, the SOW approach should use one MSA, then attach each SOW to the MSA. This approach will remove the three potential problems discussed above. Also, the MSP will not have to revisit the MSA for each engagement with the same customer. Additionally, the SOW attachment could be implemented in the Modular Approach as well.

Checklist Approach 

A checklist structure is great when there are multiple offerings that can be presented in an MSA each in a paragraph or two. In this approach, a well-drafted and complete MSA is used, and then a checklist of each offering is attached to the beginning of the MSA. Here, either party can easily determine what the customer has purchased be reviewing the cover page, or at the most, the first few pages of a detailed checklist. Also, when it comes to renewing or amending services, it can be much easier to update a checklist than to revisit the entire MSA. Keeping all of the checklists with the original MSA will also keep a chronological history of the services that the customer has procured.

Although these structures generally work well, nothing works as well as a customized MSP contract, by potentially combining these approaches or employing other approaches as well. Working with an experienced MSP attorney to tailor the right base agreement to a business can make for an optimum sales and customer experience, as well as properly protect each party's interests.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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