Writing Contracts That Avoid Legal Disputes

Even if a contract dispute doesn’t go to court, it can cost a services provider tens of thousands of dollars, thousands of labor hours, and many sleepless nights.

Fortunately, our go-to legal resource Brad Gross has seen it all, and from what he’s seen, he’s got plenty of advice that will help services providers avoid the pinch of a contract dispute before it happens. Here’s an excerpt from a forthcoming “Channel Voice: The Channel Executive Podcast” episode featuring Gross’ insight.

CHANNEL EXECUTIVE: In an increasingly complex tech environment, as much as IT services providers try to create efficiencies around the templatization of client engagements, there will always be nuance and detail from one account to the next that require some specificity. Short of seeking counsel at the writing of every contract, what advice can you offer to ensure they’re getting all those i’s dotted and t’s crossed at the contracting stage?

GROSS: First off, if you require the involvement of counsel in the contract every time, something’s gone seriously wrong in your business. There are two overarching ideas that providers need to think about; consistency and a baseline. Let’s start with the baseline. You cannot templatize everything, but you can create some templates that baseline what you provide and how you provide it under most scenarios. Usually, there’s what I call a precious metal plan (platinum, gold, silver), an all-in plan, etc. To the extent that those are in place, you can create baseline contracts to match. Start by creating a SOW for your most comprehensive plan; then you can always cut back on it. If you’re going to provide managed services but no BDR solution, for instance, you still need to define what’s going to be covered, limitations, exclusions, and so on based on a standard contracting procedure.

Once the baselines are established, create consistency. Use the documents you have, all the time, every time. There is no exception for a customer that you consider “special” because you’ve known them for a long time. Everyone needs a master agreement or SOW. Everyone signs, everyone goes through the process, consistently. I see cases all the time where a service provider was just selling a block of hours, no BDR, no RMM, or maybe some internal security incident management services — things that are different from what they normally do, so they handle it fast and loose and give the client very little in the way of a description of services. That’s inviting a problem, and in my world, a problem is an expensive dispute.

A while back, I visited my mechanic to have a nail removed from one of my car tires. It was an $8 repair. I paid for it out of the cash in my pocket. But before they touched my car they made me sign their master agreement — the same master agreement I would have signed if they were replacing my transmission. Why are they making me do that? Because that repair center knows that as soon as you touch something, you own it. They fixed a hole in a tire, but if I drove away and my brakes failed, who would I blame? They know who. When you sell a system, touch a device, do something to a node on a network, I don’t care how big or small the project is — fifty, a hundred, or fifty thousand dollars — they’re going to point the finger at you. You need to have baselines, consistency, and a reliable way of handing the contracting process that will protect you.

CHEX: Give us an example of the risks services providers face if they’re not protection-oriented at the contracting stage?

GROSS: I have an MSP client that was providing BDR services for a customer, but his statement of work was ambiguous. It said they were going to back up some servers. The MSP backed up three of five. The two that weren’t backed up were the ones that failed. There was too much ambiguity there. The client thought they were covered by contract. The MSP said they weren’t. Who’s right? Now we’re going back and forth at hourly legal rates to determine that.

This is all short of the court system, for now. Nothing’s been filed, but I guarantee you this will cost each side tens of thousands of dollars before it’s all over. The MSP has already engaged in a “let’s see what we can do” kind of mentality to smooth things over. They’re spending their own time and their own money trying to recover data from a server that they never had responsibility for to begin with. They’re not getting paid to do it; they’re simply trying to avoid further damage.

The proper SOW, the one they should have had in place, wouldn’t have said “we’re backing up your servers.” It would have said “we’re backing up this server, that server, and this other server,” and each would be explicitly identified and listed. The SOW would have stated specifically that the rest are out of scope. Just a sentence or two would have saved them tens of thousands of dollars.

CHEX: There’s the money — the potential for racking up tens of thousands of dollars in counsel fees — but what are some of the other repercussions of disputes and potential court cases in this business? For local-market IT services providers in the SMB space, won’t a dispute do a lot of potential brand reputation and referral damage?

GROSS: For an SMB provider, you can’t overlook brand reputation and the damage this stuff can bring. It can be company-ending. Very often, SMB providers aren’t equipped to handle the resulting downturn, and they find themselves in a downward spiral. These disputes are not cheap, and they’re not easy. They most often involve two parties, each of whom believes they are right, and it almost always leads back to an ambiguity in the contract. I can tell you that not only will these disputes occupy a services provider’s time and drain their bank account, they will occupy their employees’ time as well. They’re talking about it, involved in the process, and killing productivity.

Less discussed, but even more important, is that I don’t care who you are, you don’t have the stomach for lawsuits. I hear people threatening to sue all the time. Trust me, you don’t have the stomach for it. You think you do, but you don’t. It will always be on your mind. The dispute, even if it doesn’t go to court, will be with you on the weekends. It will be with you on the holidays. When you’re with your family, it will be bouncing around in your head. That mental, cumbersome process takes a lot out of you. So, you spend a lot of money to resolve it, or you spend a lot of time trying to fix it. The repercussions are a loss of money, time, reputation, and this incredibly heavy distraction for you and for everyone around you. It’s a horrible situation, which is why, when we draft contracts, we do so with the goal of avoiding these issues in the future. You don’t want to have to get involved in these disputes. They are more than you can handle, I promise you.

CHEX: That’s a lot of heat and a lot of weight, and you deal with it on your clients’ behalf all the time. How do you, personally, handle the stress?

GROSS: I admit that I’m not great at leaving it at the door. These things plague my mind. You can’t turn it off. I’ve been on all sides. I was a prosecutor for more than seven years, and I’ve done a lot of litigation. Where I take solace, is knowing that I’m approaching these cases with a goal of resolution that’s fair and just. They say a good settlement is one where everyone walks away unhappy. I get that quip, but no. I don’t think about how we’re going to fight long and hard and drag it out until the other side says mercy. I think about solutions, and leveraging my knowledge of the technology and the infrastructure, determining what reasonable expectations might be, and trying to come up with a creative solution. By doing that, I can sleep at night. You grow up, you mature, you stop fighting and you think about resolution that avoids the ongoing, seemingly forever process of litigation. That’s my solace.

BRADLEY GROSS is the founder and president of the law office of Bradley Gross, P.A. Gross is a world-recognized expert in information technology law. His law firm specializes in transactions involving MSPs, VARs, OEMs, technology solutions resellers, cloud solutions providers, IT professionals, and technology and media companies globally.