8 top tips to improve your managed service provider agreements

What is a managed service provider agreement?

Managed service provider agreements are essential for ensuring smooth partnerships between managed service providers (MSPs) and their clients. These agreements outline the expectations, responsibilities, and protections for both parties, making it critical that they are well-structured and clear. For a broader guide to managed service provider agreements, click here.

Robust managed service provider agreements include a combination of various commercial terms and legal provisions, some of which will vary depending on the type of service being provided. Whether you operate in IT, HR, facilities management, or any other sector that outsources managed services, a well-drafted agreement can protect your interests and ensure a seamless working relationship.

In this guide, our legal experts will share eight top tips to help MSPs improve their managed service provider agreements and make them as effective as possible.

1. Be specific about the scope of services

One of the most important elements of a managed service provider agreement is the definition of services. Be as specific as possible about what the MSP is responsible for, including deliverables, locations, and timelines.

Avoid vague descriptions and offer clear, detailed expectations. For instance, if you provide support based on a ticketing service, spell out how service tickets will be handled, how requests outside business hours will be dealt with, and who will be the main point of contact or personnel team responsible for your service. This clarity will help avoid misunderstandings and gaps in the client’s understanding of the service.

Use examples and performance indicators to provide measurable outcomes (see point 3 for more guidance on service levels), ensuring everything is explicitly covered in the agreement.

2. Clearly define the client’s responsibilities

In most cases, managed services will rely on the client providing certain access, materials, or information to enable the MSP to carry out the services. Ensure you include a list of requirements that the client must meet for you to deliver your services.

Bonus tip: Robust MSP agreements often carve out the MSP’s liability for instances where the client has failed to meet its obligations, which in turn prevents the MSP from providing the services by a specific date or timeline stated in the contract.

3. Set clear service levels

A well-defined service level agreement (SLA) within the contract is essential. It should outline key performance metrics such as response times, uptime, and quality standards that the provider must meet.

The SLA sets out what your client can expect regarding your response and remediation timeframes. This creates a benchmark for performance and outlines the consequences if service levels fall short.

As an MSP, carefully consider the escalation procedures you include in your contract for instances when service levels are not achieved. You can incorporate remedies or service credits as compensation for unmet targets (for more guidance on service credits, check out this blog); however, the key is to assure your client that issues will be promptly addressed.

It’s important to remember that, depending on the services you provide, there may be different SLAs for different types of services (e.g., if part of the services includes third-party services). You can find out more about SLAs here.

4. Define payment terms

Clearly outline the services the MSP will offer and the corresponding payment structure for each service.

Specify the fees, payment schedules, and how costs may change if additional services are needed or the scope of work changes.

Ensure you include what will happen if the client makes late payments and incorporate a process for resolving any payment disputes.

Bonus tip: To account for cost increases that may affect your business (e.g., inflation or rising expenses), include a clause that allows you to adjust your prices. By adding an annual price adjustment option with a reasonable percentage increase, you can manage rising costs while ensuring your clients are aware of potential future price changes.

5. Have a robust limitations of liability clause

Liability is one of the most important clauses in any managed service provider agreement. It helps outline the specific areas where your MSP is responsible and sets a cap on the financial risks involved.

To manage risk effectively, it’s essential to define precisely what you will be liable for and to list what you will not be responsible for. You can see an example of this in our managed service provider agreement template.

It’s important to place reasonable limits on the losses or damages for which you are liable in your MSP agreement. A common approach is to cap liability at a set amount, such as the total fees paid by the client over the past year. This ensures that claims are proportional and don’t put your business at excessive risk.

Additionally, exclude indirect or consequential losses—such as lost profits or business interruptions—which are harder to control and predict.

Bonus tip: Don’t forget to include a “force majeure” or “unforeseen events” clause to cover you in case of unforeseen events, like natural disasters or cyberattacks, that could impact your ability to deliver services.

By clearly setting these limits, you protect your business while maintaining transparency with your clients. For more information about liability, read this blog.

6. Include termination and renewal provisions

How long will the agreement last? It is common for MSPs to include auto-renewal provisions so that the term automatically renews for a defined period after the term expires.

In addition to outlining the term of the managed service provider agreement, it should also specify how and when either party can terminate the agreement.

Include notice periods, conditions for early termination, and the renewal process. This gives both parties a clear exit strategy should the partnership no longer be beneficial.

7. Add restrictions that protect your business

When providing services, it’s crucial to ensure that the key elements of your business remain secure. Including legal restrictions in your managed service provider agreement can provide you with the peace of mind you need.

Here are some essential protections to consider:

• Confidentiality obligations: This restricts the client from disclosing your sensitive information, safeguarding your proprietary data and trade secrets.

• Non-poaching terms: These clauses prevent the client from soliciting or hiring your key employees, protecting your talent and intellectual capital.

• Limitation on usage: This restricts the client from using your services for purposes outside the agreed scope, ensuring your resources are not misused or accessed by third parties without your consent. This allows you to maintain control over the quality and delivery of your services.

By incorporating these types of legal protections into your agreement, you create a robust framework that safeguards your business interests and sets a transparent playing field with your clients.

Bonus tip: Non-poaching (also known as non-solicitation) clauses should extend for a reasonable period even after the contract ends to prevent competitive conflicts.

8. Regularly review and update your managed service provider agreement

As your business evolves, so too should your managed service provider agreements. Ensure that the agreement remains relevant by reviewing it periodically, especially when regulations or your business needs change. Additionally, if you offer a broader range of services over time, ensure that the relevant sections of your contract, such as the scope of services and service levels, reflect any changes.

Tip: Consider using a template that can be easily updated to reflect legal changes, industry best practices, or new services. At Docue, our legal experts continuously maintain our templates and update them to reflect any legal changes.

You can find our managed service provider agreement template here. You can also check out our comprehensive guide for more information about best practices regarding these contracts.

Conclusion

A well-drafted managed service provider agreement is critical for building a successful, long-term relationship with your service provider. By following these top tips and being thorough in your approach, you can create agreements that protect your business and set a strong foundation for high-quality service delivery.

Ready to create your own managed service provider agreement? Use Docue’s fully customisable template to simplify the process and ensure all key clauses are included.

You can try Docue's fully customisable managed services agreement to create your own bespoke terms by clicking here.