Are Your Client Contracts Putting Your MSP at Risk?

For many Managed Service Providers (MSPs), client contracts often feel like a formality, a necessary step to onboard a new client.

But the truth is, these agreements are the backbone of your business. When they’re incomplete, outdated, or poorly written, they can expose your MSP to significant risks.

From legal disputes to financial losses, bad or missing contracts can harm your reputation, erode trust, and jeopardize your business.

This isn’t just theoretical.

Your customer contracts are crucial at the time of lucrative acquisitions. Yet paradoxically, these critical documents often receive the least attention until there’s a problem.

In this blog, we’ll explore how to identify MSP contract risks in your agreements and what you can do to protect your MSP.

Red Flags in Your MSP Contracts

The MSP landscape has evolved dramatically in recent years. High-profile ransomware attacks, vendor outages, and increasing regulatory scrutiny have transformed what constitutes adequate legal protection.

Yet, many MSPs are operating with contracts that were written for a different era. Which, in turn, leaves them exposed to modern threats they never anticipated.

Let’s examine specific legal risks MSPs can face to understand where your contracts need the most attention.

1. Ambiguity in Scope of Services

Many MSPs run into problems when their contracts don’t clearly spell out what’s covered and what’s not.

The Risk:

If your contract doesn’t clearly outline the services you’ll provide (and what’s excluded), clients may assume you’ll handle everything, including tasks you never agreed to.

The Impact:

• Scope creep, leading to increased costs and strained relationships.
• Disputes over deliverables that escalate into legal or reputational issues.

How to Fix It:

Use detailed service descriptions and attachments to set clear boundaries, ensuring both parties understand what’s included and excluded.

2. Missing Cybersecurity Responsibilities

We’re seeing more cases where MSPs get blamed for security breaches, even when they do warn their clients about MSP client contract risks ahead of time.

The Risk:

Without explicit clauses about cybersecurity, clients may blame your MSP for breaches, even if they ignored your recommendations or failed to follow best practices.

The Impact:

• Exposure to liability for events outside your control.
• Increased risk of disputes following ransomware attacks or phishing incidents.

How to Fix It:

Include terms in your contracts that:

• Document security recommendations and client responsibilities.
• Exclude liability for breaches caused by client negligence or external criminal acts.

3. Outdated Regulatory Terms

New data privacy laws keep popping up at the state level. Colorado, Virginia, and Connecticut just added their own rules to the mix.

The Risk:

Data privacy laws like GDPR, HIPAA, and state-specific regulations evolve constantly. If your contracts don’t reflect the latest requirements, you risk non-compliance.

The Impact:

• Regulatory fines for mishandling data.
• Lawsuits or disputes over unclear data processing responsibilities.

How to Fix It:

Incorporate dynamic Data Processing Agreements (DPAs) into your contracts and ensure they address current legal obligations. While conducting your MSP contract review make sure that it keeps up with each new state’s requirements.

4. No Protections Against Vendor Failures

The recent Crowdstrike service problems showed what happens when a key vendor stops working, it affects your whole MSP business.

The Risk:

MSPs often rely on third-party providers, but if your contracts don’t address vendor risks, your clients may hold you responsible for their failures. That’s why a well-written client contract protection for MSPs can not only benefit your clients but your business as well.

The Impact:

• Financial exposure to service disruptions caused by vendors.
• Damage to client relationships and reputation.

How to Fix It:

Add clauses that exclude liability for acts or omissions of third-party vendors and shift responsibility to those providers when appropriate.

5. Lack of Pricing Flexibility

Recent industry events have highlighted how volatile costs can be in the MSP space. MSPs need the contractual flexibility to adjust their pricing without renegotiating every agreement to deal with unexpected vendor price increases or inflationary pressures.

When your contracts lock you into fixed prices, you can’t adjust them even if your vendors raise their rates or your clients need more services.

The Risk:

Static pricing terms can leave your MSP exposed to rising costs from vendors, inflation, or expanding service requirements.

The Impact:

• Reduced profitability.
• Inability to adjust fees for new or additional services.

How to Fix It:

Include pricing adjustment terms that allow for flexibility, such as provisions for cost increases with reasonable notice to clients.

The Consequences of Ignoring These Red Flags

The temptation to take shortcuts with contracts is understandable. But it is dangerous nonetheless. MSPs often try everything from downloading templates from peer groups to using AI tools to generate agreements.

However, these approaches often create more problems than they solve. After all, AI-generated content isn’t even copyrightable. When MSP ignores these red flags, their contracts fail to address many issues.

And the consequences can be severe:

• Legal Disputes: Poorly defined terms can lead to lawsuits and arbitration.
• Financial Losses: Uncapped liabilities or unexpected costs can drain resources.
• Client Churn: Misaligned expectations can drive clients away, impacting your recurring revenue.
• Reputational Harm: A bad contract today can damage your reputation tomorrow.

What a Great MSP Contract Looks Like

To make their MSP Contract Risk Management easier than ever, most successful MSPs have moved away from treating contracts as static documents that are signed once and filed away.

Your modern agreements should include:

1. Clear service descriptions with exclusions to avoid scope creep.
2. Strong cybersecurity clauses that allocate responsibilities and mitigate liability.
3. Up-to-date regulatory compliance terms to address evolving data privacy laws.
4. Vendor risk protections to shield your MSP from third-party failures.
5. Pricing flexibility that keeps your business profitable and sustainable.

The Monjur Advantage

At Monjur, we understand the unique challenges MSPs face.

The traditional model of paying large upfront fees for static contracts simply doesn’t work anymore. They quickly become outdated and if you want them updated regularly, you would have to pay for more billable hours.

That’s why we’ve pioneered a different approach.

Our Contracts-as-a-Service (CaaS) solution ensures your agreements are always legally sound, up-to-date, and tailored to your business needs.

Don’t wait until a bad contract puts your business at risk. Contact us today to learn how Monjur can help you build contracts that protect your MSP and support your growth.