Crucial Components of a Managed IT Services Contract Template

Managed IT Services Contracts Explained

A managed IT services contract delineates the relationship between a service provider and a business looking for assistance. Whether you run a "mom-and-pop" shop or a Fortune 500 corporation, if you use information technology in your business operations, you need to understand what you are outsourcing and what you are retaining for yourself.
The breadth of this type of contract might initial appear to limit small to mid-sized businesses. However, even the small orthodontic practice will rely on its network of computers at one point or another. Although you may not have on-site IT assistance, you may benefit from having someone monitor your network, conduct updates as needed, and troubleshoot any problems when they arise. In addition, your practice may need to outsource the management of its entire IT infrastructure to a vendor .
As with any contract, the vendor and the business should discuss the services that will be provided, how much those services will cost, and the extent to which the vendor may be compensated for any budget overruns or costs associated with unforeseen changes to the business or its IT infrastructure. You’ll also want to discuss and negotiate the budget caps that may be placed on specific tasks such as developing a new program, performing monthly maintenance, etc., because you want to ensure that you are not suddenly faced with costs that you cannot afford without prior notice. It is also important to discuss precisely how you will be billed (e.g., by the hour or by the project) and to reach an agreement on a specific schedule for payments (biweekly, monthly, quarterly, etc.).
Obviously, you also want to understand and agree to the terms of the contract. Although the terms and conditions will vary greatly from one contract to another, these are the most common elements: These contracts are often very detailed and lengthy and are meant to protect both the vendor and the business for which the specific services are required.

Elements of a Managed IT Services Contract Template

Commonly, there are several critical components for a managed IT services contract template. Below are the key components of such a template:
I. Scope of Services
A managed IT services agreement will need to include the full scope of services that a service provider intends to perform for the customer. A general description is not adequate. The scope should be as detailed as the parties wish. It can describe items such as on-site and remote support hours, additional charges for after-hours support, number of supported devices, non-supported devices, software platform support, devices covered under the agreement, etc.
II. Service Level Agreement ("SLA")
Service level agreements are a means to guarantee a level of service from a service provider. From a customer’s perspective, a SLA is typically the most important part of the managed IT services agreement. A SLA sets out the expected response time by the service provider upon request from the customer. A SLA also sets out the availability requirements, such as the service provider being required to be on-call for 99.9% of the time. A SLA can also provide for service credits in the event a SLA is not timely met by the service provider.
III. Responsibilities of the Parties
The managed IT services agreement will set out the responsibilities of the service provider and the customer. It is important that the agreement clearly allocate the respective responsibilities to avoid any potential disputes during the term of the agreement.
IV. Standard of Care (i.e., "Best Efforts" or "Commercially Reasonable Efforts")
A managed IT services agreement will typically contain a provision for the standard of care that the service provider must perform under in order to fulfill the services described in the agreement. Again, the standard of care will set out the level of service the parties expect in the agreement. Sometimes a service provider will want to qualify its performance by stating that it only needs to use its "commercially reasonable efforts" or "best efforts" to meet its obligations under the agreement. However, this qualification is rarely acceptable for customers.
V. Limitation of Liability and Indemnification
A managed IT services agreement will contain a limitation of liability and indemnification provision. A service provider will want to limit its liability to the customer for its breach of the agreement, his negligence, etc. to a maximum of two or three times the amount of the fees paid by the customer under the agreement (or a similar cap). This limitation may be rejected by customers depending on the scope of the services to be provided (e.g., if money damages are not sufficient or if the damage to the customer from a service failure will be material). Indemnification provisions are used to allocate the exposure to damages between the service provider and customer.

Legal Terms Commonly Found in a Service Contract

Legal Considerations in Service Contracts often overlooked
While each contract template should be reviewed by legal counsel, there are certain legal provisions that must be present in a managed IT service contract. Here are some of the most common terms and conditions that should be included:
Legal Advice/Representation
It is always advisable to seek the help of an attorney when drafting any document that has consequences for your business. Too many businesses do not utilize the criminal justice system to protect their rights or the rights of their business and/or its owners.
Liability, Indemnity and Lawsuits
Typically, these provisions state that neither party is responsible to the other for certain types of damages and that one party will hold the other harmless for damages. It also outlines the procedures for resolving any disputes on the contract.
Compliance with Laws and Regulations
It is important that if you’re doing business in a highly regulated areas that those applicable laws and regulations are satisfied by the service provider. For example, if you’re a health care provider, the service provider should comply with HIPAA regulations.

Making a Contract Template Work for Your Business

One size fits all is not a philosophy that any business should embrace for its IT services contract template. While the basic structure may work for your company, there are definitely some sections that you are going to need customized to your specific situation. Even though your contract template may be an initial starting point for your document, there are important considerations that must be taken into account when you decide the level of customization.
Technical Requirements Some businesses will have very specific technical requirements for their IT services contract template. This may include systems that the vendor must use, such as CRM software or a specific project management program that will be adhered to during the term of the contract. In this case, the contract template must detail these requirements so that it is clear the vendor must adhere to them. Without customization, there is a risk that the vendor will not deliver what your business requires.
Industries The nature of some industries may require a certain level of customization. For example, if your business is in the healthcare industry, some aspects of your IT services contract template may need to include privacy policies. The vendor you choose to work with will need to abide by these polices, which you cannot assume a generic vendor contract template will include.
Technology Changes Your business may have certain technology infrastructures in place that you need to change over time. Because of this, your IT services contract template may need to include clear transition mechanisms in the event that you need to migrate to cloud computing several years down the road. If this specification is left out, you may find yourself stuck and paying for outdated and unnecessary services.
Your company is unique, and its needs for IT services are too. Taking the time to customize your IT service contract template will help you avoid the pitfalls that many businesses find themselves in. Working with a legal professional will also ensure that you create and provide a comprehensive IT service contract template that covers all bases.

What to Watch out for in IT Contracts

When entering into a managed IT services contract for the first time, the impulse may be to simply copy someone else’s contract or sign a managed IT services contract template provided by the service provider. However, there are several common pitfalls to avoid in an IT services agreement.
A managed IT services contract can be a long-term agreement, which means your obligations under the agreement can run for months or years. Payment terms typically require the client to make fixed monthly payments throughout the life of the contract. But payment terms should also define the services the client will receive in exchange for its payments. Without clearly defined "scope of services," the service provider may bill for services or fees outside the scope of the agreement.
As the introduction states, managed IT services contract templates can be a dangerous place to start – especially if the template was written for a service provider and does not favor the client. Many template contracts don’t actually define what work the service provider must perform. A well-drafted managed IT services contract template should define what IT services a client expects from its IT service provider. It should also define in detail what services fall outside the scope of the contract so all parties know GPX will not pay extra fees for a particular service. This will save the client from aggressive billings outside the contract.
It is important for a client to know what data , if any, it will not be able to access if it chooses to leave its IT service provider. For example, a client that utilizes and uploads customer information to a cloud-based platform may not be able to directly download or export customer information from the cloud platform. When executed properly, a managed IT services contract should allow a client to retain its customer data upon separation without significant burden. The contract should also define whether the client or the IT service provider will be responsible for migrating the data to the client’s new platform or cloud software. In either case, the party migrating the data should be required to do so in a manner that allows the client to retain the data, and should likewise be required to return all of the client’s data in its own format if the contract terminates. A managed IT services contract, like any other contract, should not limit your rights upon separation.

Handling Negotiations over IT Services Contracts

When it comes to negotiating managed IT services contracts, the objectives of both parties should be approached with full transparency, and with the same basic goals in mind. In their eagerness to reach a final deal, many business owners enter into negotiations without taking the time to understand the various terms and conditions of a contract, sensationalizing how the managed IT services provider will perform, and having no real strategy for the negotiation process. When properly managed, however, the negotiation process can be highly productive in establishing contractual terms that protect the interests of all parties. As a result, hiring a managed IT service provider becomes a much smoother process for your business. One of the most effective strategies for negotiating managed IT services contracts is to ensure that the terms are clearly defined from the very beginning. Both parties should openly discuss their expectations for the service relationship, and lay out the goals that they hope to achieve through their partnership. The clearer the terms are now, the less likely you are to run into problems down the line. It is also important to make sure that all the terms are in writing. The specific remedies that will be made available to a client whose requirements are not met should be explicitly explained within the written contract for clarity. This will prevent any miscommunication from occurring in the future, and will offer both parties peace of mind, knowing that their investment and their needs are protected. Contracts are meant to encourage both managed IT services providers and their clients to maintain a professional, legally valid agreement. If either party refuses to enter into a contract because they prefer to "go with the flow" and "figure things out as they unfold", then this could be a red flag. Contracts add a level of security to the business and can keep either party from contracting with unethical people or companies.

How Contract Management Can Help After the Deal

After signing a managed IT services contract, those responsible for contract administration and management should have a plan for managing the contract both with the vendor and internally. Most organizations need a disciplined approach to renewals or terminations.
First, monitoring vendor performance is essential because it ensures that the organization is getting the services for which it bargained. Ongoing performance review provides the opportunity to help the managed service provider to understand what your organization needs and expects. Many IT departments have proprietary systems – in which expertise will develop – that they do not want their provider to learn. The client’s IT organization may want its provider to use a specific system but be willing to invest in training if and only if the relationship continues. Organizations that implement this type of contractual obligation will be more likely to be confident in managing their provider on the one hand and their own expectations on the other.
Second, all managed services contracts, regardless of language, become inaccurate over time . New devices, new software, updates, upgrade and changes in applications all affect managed services contracts. In order to maximize the benefits of managed services arrangements, managed service providers must be flexible. Although contract change requests are common, not every change may be initiated by a request for change. Often changes arise as a result of initiative by the vendor or, more likely, the client. Regardless of who initiates the change The Standard Terms require the change to be signed by the parties and an adjustment to the rates to be made. Organizations using a managed service contract should have a sound process for tracking and implementing changes and an expert available to assist on an as needed basis.
Third, all managed services contracts have a termination provision. This provision will either give rise to a renewal decision or termination decision. Most agreeing to a managed services contract would simply expect it to renew, but if the termination process involves a series of decisions and actions, the organization should have a plan to address each of the decisions and actions until terminated. The organization should take into account both the vendor and internal requirements.