Key Takeaways

  • A managed services contract outlines scope of services, fees, liability, and performance standards between an MSP and a client.
  • Including onboarding, termination, and performance metrics ensures smooth service transitions and clear expectations.
  • Clauses on service exclusions, compliance, and escalation protocols can prevent disputes and regulatory issues.
  • Regular reviews and amendment procedures help the contract remain relevant as the client’s needs evolve.
  • Legal review is essential to protect both parties and ensure enforceability.

A managed services contract is an agreement between a managed services provider (MSP) and a client. The contract is a service level agreement (SLA) that outlines the responsibilities of both parties. It also includes which services the MSP will provide, the minimum amount of time for a response, payment structure, and liability protection.

About Managed Services Contract

When creating a managed services contract, the agreement should provide a clear understanding of the services the MSP is to perform for the client.

Developing a managed services contract is usually the first step taken by the provider (MSP) to prepare the agreement to include the services and terms and conditions for a new client.

By taking this first step, the MSP can identify the potential client's environment and create a framework for the services to ensure profitability for the managed services provider.

The potential client is also put at ease by providing him or her with an easy-to-understand service level agreement covering both the MSP and client's needs.

A managed services contract is a binding agreement that records the following:

  • Availability
  • Guarantees
  • Operation
  • Performance
  • Priorities
  • Resolutions
  • Response
  • Responsibilities
  • Serviceability
  • Services

A managed services agreement is often broken down into segments to further clarify the conditions of each are. These segments may include:

  • Confidentiality
  • Coverage hours
  • Covered users, equipment, software applications, services
  • Definition of services
  • Exclusions
  • Fees (including labor) and payment schedule
  • Hours of coverage
  • Limitation of liability
  • Policy for providing service outside of normal coverage hours
  • Problem management
  • Support and escalation procedures
  • The term of the agreement

Have an attorney review the managed services contract, as well as any other legal document, to make sure the rights of the business and the customer are protected.

Why Managed Services Contracts Matter

A managed services contract is essential for aligning expectations between a service provider and its client. It defines responsibilities, limits risks, and sets standards that promote transparency and accountability. These agreements not only reduce service ambiguity but also serve as a roadmap for issue resolution and operational continuity. As businesses increasingly depend on external IT or business operations support, formalizing terms in a written managed services contract ensures long-term success and stability.

Basic Overview of a Managed Services Contract

Key Components of a Managed Services Contract

While every managed services contract is tailored to the specific relationship between a provider and a client, strong agreements typically include the following components:

  • Scope of Services: Defines what services will and will not be provided (e.g., help desk, data backup, cybersecurity).
  • Performance Metrics: Establishes service level objectives (SLOs) and expectations for uptime, response time, and resolution.
  • Responsibilities: Clarifies what is expected from both parties, including client cooperation and MSP obligations.
  • Monitoring and Reporting: Specifies what systems will be monitored and how performance will be reported.
  • Change Management: Outlines the process for adding or modifying services.

Term of Agreement

When creating this portion of the contract, it will list the name(s) of the client and the name of the service provider. It will include the effective date, length of the contract, automatic renewal information, if applicable, termination or suspension policy, and review and modification stipulations. If modifications are necessary, additional fees/percentages are listed. It will also include information about either party providing a written notice and a set timeframe if the agreement is not to be renewed.

Onboarding and Transition Procedures

A well-structured managed services contract includes onboarding steps for service activation and smooth transition protocols. These often involve:

  • Assessment of the client’s current IT infrastructure or business operations
  • Documentation and inventory creation
  • Introduction of escalation paths and client training
  • Timeline for full implementation of services

Transition clauses are particularly important when clients are switching providers and need support during the knowledge transfer phase.

Fees and Payment Schedule

The fee section stipulates the dollar amount to be paid and when, such as monthly, and the due date. Information may be included discussing the suspension of service if payment is not received within a certain timeframe.

Taxes

An explanation of taxes, including federal, state, and local, will be added to each invoice for services and/or materials. If the client can produce a valid exemption certificate, this should be addressed in this section of the agreement.

Coverage

This segment details the days and hours a client can expect a response to any issues they may be having. For example, the client's computer system is not functioning, and they need help from the IT support group.

Excluded Services and Client Responsibilities

Not every service falls under the umbrella of managed support. Clearly defining excluded services helps prevent disputes. Common exclusions include:

  • Equipment not owned or supported by the MSP
  • Issues caused by client negligence or third-party software
  • Acts of God or force majeure incidents

The contract should also list client responsibilities, such as timely reporting of issues, providing access credentials, and maintaining up-to-date equipment.

Service Outside Normal Working Hours

The agreement shall have clearly stated provisions of what is involved when a service call is performed outside of the regular business hours of the MSP.

Service Calls Where No Trouble is Found

This section explains the billing for service calls by the MSP when no problem is found at the client's place of business.

Limited Liability

The agreement will state that the managed service provider is not held liable for things such as incidental, consequential, or indirect damages. This will also include no responsibility for loss of profits or revenue, costs to substitute equipment, lost data, or other costs.

Miscellaneous

This segment specifies the agreement is governed by the laws of the applicable state, and that the MSP is not responsible for failure to render services due to circumstances beyond its control.

Regulatory and Compliance Considerations

MSPs servicing clients in regulated industries (e.g., healthcare, finance) must ensure the managed services contract complies with relevant standards like HIPAA, GDPR, or PCI-DSS. This section should:

  • Specify who is responsible for compliance-related tasks
  • Outline how sensitive data is managed, encrypted, and stored
  • Include terms for breach notification and remediation timelines

Noncompliance can lead to severe legal penalties, so it's crucial that this portion is legally vetted.

Confidentiality

This section states the service provider and its agents will not disclose a client's information. The exception is only if it's necessary to provide the contracted services. Otherwise, the MSP will protect the information from unauthorized use.

Escalation and Dispute Resolution Procedures

To prevent small issues from escalating into legal conflicts, many managed services contracts define a formal escalation process. This may include:

  1. Internal review between primary contacts
  2. Executive-level discussion between leadership
  3. Mediation or arbitration if no resolution is reached

Having a predefined dispute mechanism minimizes downtime and maintains business continuity during disagreements.

Acceptance of Service Agreement

The last section clarifies which services and equipment are part of the agreement as well as any adjustments that need to be made after the effective date.

The last paragraph is signed by a representative authorized to accept the agreement as of the specified date.

Review and Amendment Clause

Because business needs evolve, a good managed services contract includes a clause for periodic review and modification. Typically, this section outlines:

  • A schedule for reviewing the contract (e.g., annually)
  • The process for submitting amendments
  • Required notice period for changes
  • Any associated fees for modifying the service agreement

This ensures that both parties can adapt the relationship as needed without renegotiating the entire agreement.

Frequently Asked Questions

1. What is the purpose of a managed services contract? It outlines service expectations, responsibilities, fees, and performance metrics between an MSP and its client to reduce risk and ensure accountability.

2. What should be included in a managed services agreement? Key components include scope of services, service levels, onboarding procedures, fees, limitations of liability, confidentiality, and dispute resolution protocols.

3. Are all IT services covered in a managed services contract? No. The agreement will specify included and excluded services. Services outside the defined scope may incur additional charges.

4. How can I ensure compliance with regulations like HIPAA or GDPR? Include specific clauses detailing compliance obligations and data protection standards. It's wise to consult a legal expert on this.

5. Can I amend the managed services contract after signing? Yes. Most agreements include a review and amendment clause detailing how to make changes, often with a required notice period.

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