5 Common MSA mistakes your MSP could be making!
At ZenContract, our extensive experience in auditing and drafting Master Services Agreements (MSAs) has uncovered several recurring issues that Managed Service Providers (MSPs) frequently encounter.
Below are some of the most common mistakes and strategies to avoid them...
1. MSAs vs. Managed Services Agreements
An MSA is a comprehensive contract that sets the overarching terms and conditions between two parties, while a Managed Services Agreement should specifically detail the IT services provided. Combining these documents often leads to confusion and inefficiencies. To enhance clarity and streamline service detail adjustments without renegotiating fundamental terms, it’s advisable to maintain these agreements separately.
2. Liability and Indemnity Provisions
Many MSAs fall short in their liability clauses and mix indemnity with liability, creating confusion and exposing MSPs to potential claims. Liability refers to the legal responsibility for damages or losses, while indemnity involves compensating for such losses. These clauses should be drafted comprehensively, limiting the scope of responsibility, specifying excluded damages, and setting a cap on claims. Indemnity clauses should address third-party claims, actions or omissions of the indemnifying party, and outline claim handling processes, including defense and settlement.
3. Dispute Resolution Mechanisms
A clear and efficient dispute resolution mechanism in an MSA ensures cost-effective and amicable management of disputes, preserving business relationships and allowing swift resolutions. Many MSAs lack structured dispute resolution processes. While court proceedings are necessary for injunctive or equitable relief, MSAs should require good faith negotiations, mediation, and arbitration first, with clear timeframes and provisions for electronic proceedings where permitted.
4. Insurance Requirements
Insurance provisions are often overlooked or inadequately detailed regarding client requirements. Both parties should maintain appropriate general liability, professional liability, and cyber liability insurance to ensure comprehensive protection against various risks. MSPs should also consider whether clients need commercial property insurance for any provided equipment or software. Clear stipulations for proof of insurance and notification of coverage changes are essential for mutual protection and accountability.
5. Non-Solicitation of MSP Employees
Non-solicitation clauses must be reasonable and necessary to protect legitimate business interests. Many MSAs include non-solicitation clauses with durations extending up to 24 months and broadly applying to all employees, agents, representatives, contractors, and subcontractors, making them vulnerable to legal challenge. Restricting the duration to a maximum of 12 months and focusing on employees and contractors with direct client relationships enhances the clause’s practicality and fairness, increasing the likelihood of it being upheld.
By addressing these common mistakes, MSPs can significantly enhance their MSAs, ensuring clearer terms, better protection, and more efficient management of their contractual relationships.
If you need assistance auditing your MSA to fully protect your business interests, our in-house legal advisor is here to help.
