Two Problems Facing Every MSP
By The Business Solutions Network
Warning: Before acting on any of the advice in this article, consult with a qualified attorney.
At IT Nation last month, I sat in on a great session led by Bradley Gross, an attorney who specializes in IT law. The session, “5 Problems Plaguing Every MSP,” was loaded with great real-life scenarios that lead to potential legal problems for IT solutions providers. The first two problems were closely related and, I believe, relevant not only to established MSPs, but VARs just making the transition to MSP. After all, when you’re setting up your services business, you might as well do it the right way out of the gate, yes?
The first problem, according to Gross, is the failure to foresee tornados, or, things you should see but don’t until it’s too late. Much of what Gross explained here has to do with your MSA (master service agreement). Quick note, if you don’t have an MSA, that’s the biggest tornado coming to get you, he says. Unlike an SLA, which contains details of deliverables and service levels and can vary by customer, an MSA should include things like general terms, limitations of liability and warranty, and payment terms and be a standard constitution for your business. Gross also advises you not “borrow” an agreement from someone else and assume that if it’s good enough for them, it’s good enough for you.
This MSA should be loaded with very specific contractual language which leaves no room for question. Unfortunately, Gross says the majority of MSAs are silent on a lot of important points. He asked some hypothetical questions.
- Consider a one-year contract that comes to an end and the customer doesn’t renew. They don’t cancel and you don’t cancel, and you keep providing service. Is there a contract? What if they don’t pay? You gave service but no one signed an agreement.
Who’s right? Gross says it really doesn’t matter who’s right because you’re stuck in a contentious situation.
- What if the client sends you an email saying they have no plans to renew unless you renegotiate? You say you’d be happy to and will give them a call, but it never happens. You never connect to renegotiate and your service keeps going past their contract date. Does the contract terminate or keep going?
Gross says there was an MSP at IT Nation who has spent well over $20,000 in legal fees trying to figure that out. Something as simple as renewal can cost you money. Consider how complex post-termination can be.
- A client terminates their contract with you today. Can you delete their data tomorrow? Let’s add in that they haven’t paid you in three months. The customer also tells you that you have the only copy of their data.
Most agreements are silent on situations like this. Silence in an MSA is a tornado. The truth is, you had a contract with a customer and contracts work both ways. They pay you to store data. When they stop paying, you can stop storing. Gross advises that you include in your MSA wording that states you will delete data 10 days after the end of the agreement regardless of whether they tell you not to. Caveat: you might be required by law under provision of HIPAA, financial institutions, etc. to not delete data.
Gross went on to give additional examples of bad situations that could have been avoided by taking the time to foresee potential scenarios before they happen. Your MSA must contemplate bad things happening.
The second common problem is failing to make the rules. Gross asked the rhetorical question: “Who makes the rules when there are no rules?” If there are no rules, your client is the first party to make the rules because they have the wallet, he answered.
In your agreements, you need to have remedies. “You must set the ground rules,” he cautions. “If you don’t, your customers will set them for you. I guarantee they won’t be in your favor.” Remedies include things like opportunities to cure, service credits, cap liability, and cap damages.
“It’s not rocket science, but it’s fascinating that people don’t want to include them in their agreements,” he continues. “MSPs don’t want to admit they can make a mistake, but these remedies must be included in an MSA. They should be listed, exclusive, and the sole remedies. Put in there what works for you.”
Gross goes on to say that remedies puts your arms around liability and makes it impenetrable. Here are some example remedies:
If the service goes down, I’ll give you a pro-rated credit for the amount of time it goes down.
If that doesn’t work, I’ll refund you, not to exceed a certain amount.
If a problem occurs and reoccurs, clients can ask for pro-rated amount back or to terminate, but there are no damages.
If there’s a problem, you have to give us reasonable opportunity to cure. If you don’t, you don’t get a remedy.
Write it out so when something goes wrong you don’t have a client coming to you saying “here’s what we’re going to do.” Additionally, Gross says your contract should have maximum liability included. Insurance companies don’t offer unlimited liability, why should you? “Don’t allow any client to make you have a company ending liability because you’re afraid to include this wording in your MSA,” he says.
All said, Gross’ 60-minute session was chock-full of great legal advice that had me thinking everyone in attendance more than paid for their IT Nation trip by avoiding future costly mistakes. That said, again, please don’t jump on any of this information without speaking with your business attorney. If you don’t have one, reach out to Brad Gross (brad@bradleygross.com, (954)-217-6225).