The Top 5 Mistakes MSPs Make in Client Contracts (And How to Avoid Them) - monjur

For Managed Service Providers (MSPs), contracts are more than just legal documents, they’re the foundation of your relationships with clients and a critical safeguard for your business.

What keeps MSPs up at night are three key issues: vendor risk, regulatory compliance, and protection against criminal acts. Yet, many MSPs fall into common pitfalls when drafting or managing these agreements, exposing themselves to all three of these unnecessary risks.

In this blog, we’ll break down the top five MSP contract mistakes made in client contracts and provide actionable tips to help you avoid them.

1. Using Generic or Outdated Agreements

Many MSPs take shortcuts with their legal agreements. They download contracts from the internet. They borrow them from other MSPs. Sometimes they use templates from vendors who don’t specialize in legal services.

The Mistake:

Many MSPs rely on cookie-cutter agreements or outdated templates that don’t reflect the complexities of their services or evolving regulations.

The Risk:

Important terms may be missing, leaving you exposed to disputes or compliance issues.
Static contracts fail to keep up with changes in technology, laws, or client expectations.

How to Avoid It:

Invest in dynamic, customizable agreements that can adapt to changes over time.
Regularly review and update your contracts to ensure they align with your services and the latest regulatory requirements.

2. Failing to Clearly Define Scope of Services

Most legal problems between MSPs and clients often start with unclear service definitions.

The Mistake:

A lack of clarity about what’s included, and excluded, in your services creates confusion and leads to scope creep.

The Risk:

Clients may assume you’ll handle tasks outside your intended scope, leading to disputes.
Unanticipated work can drain resources and erode profitability.

How to Avoid It:

Include a detailed Service Description or Service Attachment in every agreement.
Specify exclusions, such as unsupported hardware, outdated software, or non-maintained systems.

3. Ignoring Cybersecurity Responsibilities

The recent Kaseya ransomware attacks highlighted the importance of clear cybersecurity terms in MSP contract negotiation. Without proper provisions, MSPs can face substantial liability even for incidents beyond their control.

The Mistake:

Contracts that don’t address cybersecurity leave MSPs vulnerable to liability for breaches, even when they result from client negligence or external threats.

The Risk:

You could be blamed for incidents caused by ignored recommendations or poor client practices.
Without proper clauses, clients may hold you liable for ransomware attacks or phishing scams.

How to Avoid It:

Document all security recommendations and require clients to acknowledge or reject them in writing.
Include clauses that exclude your MSP from liability for criminal acts or breaches resulting from ignored advice.

4. Overlooking Vendor Risk Management

Most courts around the country use the same rule. That is for a waiver of the right to sue to be enforceable, it needs to be a clear and unequivocal waiver of a known right.

The Mistake:

MSPs often depend on third-party providers, but many fail to account for vendor risks in their contracts.

The Risk:

If a vendor’s failure affects your client, you could be held liable.
Vendor-related outages or breaches can damage your reputation and client relationships.

How to Avoid It:

Include indemnification clauses to protect your MSP from vendor-related issues.
Add disclaimers that clearly state you are not responsible for acts or omissions of third-party service providers.

5. Leaving Out Pricing Adjustment Clauses

With rising vendor costs and inflation affecting the IT sector, static pricing terms can seriously impact MSP profitability.

The Mistake:

Rigid pricing structures in contracts prevent MSPs from adapting to rising costs or changes in service requirements.

The Risk:

Rising vendor costs or inflation can erode your profit margins.
Clients may expect additional services without corresponding adjustments in fees.

How to Avoid It:

Add provisions allowing for price increases with reasonable notice (e.g., 30-60 days).
Specify conditions for adjustments, such as regulatory changes or increased vendor costs.

What Happens When MSP Contracts Fail

The consequences of poorly constructed contracts can be severe:

Financial Losses: Misaligned terms can lead to costly disputes or unprofitable engagements.
Legal Exposure: Missing or vague terms can leave you liable for damages beyond your control.
Damaged Relationships: Poorly defined responsibilities erode client trust and satisfaction.
Compliance Risks: Failure to address regulatory requirements can result in fines or reputational harm.

Each consequence interacts with and amplifies the others. A compliance issue can trigger legal exposure, which leads to financial losses and damaged relationships. That’s why any kind of client contract pitfalls for MSPs can be severely damaging.

How to Build Better Contracts

Avoiding these common MSP contract errors starts with a proactive approach to contract management. Great MSP contracts should include:

Dynamic terms that adapt to changes in services or regulations.
Clear service descriptions to eliminate ambiguity and scope creep.
Risk-balancing clauses to address cybersecurity and vendor-related liabilities.
Pricing flexibility to keep your business profitable.

These elements work together to create a strong foundation for your client relationships while protecting your business interests. Feel free to bookmark this contract review checklist so you can refer back to it whenever you need.

The Monjur Advantage

At Monjur, we understand the unique challenges MSPs face. Our Contracts-as-a-Service (CaaS) solution ensures your agreements are tailored, up-to-date, and legally sound.

With Monjur, you can avoid these common mistakes and protect your business from unnecessary risks.

Monjur provides:

Industry-leading templates curated over 20 years and 500+ engagements
Customized contracts tailored to each MSP’s unique needs
A comprehensive schedule of third-party services, pre-populated with over 200 common vendors, that protects your MSP from vendor-related liabilities
Dynamic regulatory updates that keep your contracts current with evolving privacy laws across the EU, UK, Canada, and US
Seamless integration with your existing quoting tools to streamline sales and contracting

Ready to transform your MSP contracts? Contact us today to learn how Monjur can help.