An IT service provider agreement is a written contract between an IT provider and a client and details the level of service the provider will offer the client. This agreement includes services provided, minimum response time, and provider liability protection. It also outlines the payment agreement between the two parties.

Elements of an IT Service Provider Agreement

An IT service provider agreement is the most common type of managed service agreement. The majority of managed services agreements include terms and conditions used to control all transactions between the client and the provider. A managed services agreement exists to created a long-term business relationship with a client. The client can be assured that they can rely on a single provider for their needs.

The service provider agreement should explain when provider liability is limited. Clients also need to be provided with applicable fees and given a payment schedule.

An IT service provider creates and/or maintains IT systems for the client. The service provider can take on responsibility for client computer systems already in place before it started managing the client's network services.

With cloud-based service providers, IT services provided could include receiving and storing customer's personal and business data. If systems malfunction, there could be dire consequences to the customer's business relations.

The service provider agreement should be exhaustive in providing details about technical support provided, escalation procedures, hours of service coverage, and exceptions and surcharges for services provided outside of normal hours of service. The agreement should detail not only the services provided but also services excluded from the contract.

Misunderstandings and disputes could crop up if the contract is unclear in its description of pricing and metrics or what services the contract covers and what they cost.

If subcontractors are hired by the service provider to help provide certain services, the agreement should document what client information is available to subcontractors.

A properly prepared agreement will provide the client with a level of certainty that the provider is reliable and able to resolve IT issues. To give the client confidence in the contract, the document should use clear, easy-to-understand language.

An IT service provider agreement will typically include:

  • Services. This section of the agreement defines what services are provided in the agreement, which are then broken down in detail in the following sections of the agreement.
  • Terms of agreement. This section details what the terms and the termination clauses of the agreement are.
  • Fees and payment. This section provides the fees for corresponding services and gives the client a schedule of payment, most often monthly.
  • Taxes. This section covers the service providers tax policy on services rendered.
  • Hours of service. This section give the hours of coverage that the provider can provide service to the client.
  • Excluded services. This section defines services that are excluded from the agreement.
  • Minimum standards. This section defines the minimum standards of service the provider is required to give. These include operating systems, different applications, patch and update levels, equipment, hardware, etc.
  • Problem management. This section defines the service providers process to manage problems that arise.
  • Response time and problem resolution. This section defines how the service provider prioritizes requests from the client and how long the service provider will take to respond to and resolve requests and issues.

Service Provider Liability

IT service providers know the technical risks that come with providing IT services, but the service provider should also understand the legal tools available to protect the company. To protect itself from being fully liable for issues that may arise, the service provider should operate and contract as a limited liability legal entity and create a well thought out service provider agreement.

Customers might ask the company to remove the limited liability provision, which would place essentially all liability on the service provider. However, the service provider must limit its liability in some manner or a single problem could potentially bankrupt the company. An IT services agreement should split the liability risk somewhat evenly between the service provider and the customer, and an insurance policy can be selected to address gaps in coverage.

Provider companies can benefit by having a guaranteed amount of revenue as agreements typically include monthly coverage payments. The service provider agreement can be a tool used to gage provider performance and customer satisfaction.

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