During my work providing expert help to Managed Service Providers (MSP), the topic of Managed Service contracts is a recurring topic – specifically, understanding what is “In Scope” and “Out of Scope” for day-to-day client work.
I recently discussed this subject at length with my friend Sue Mann of Cousins Business Law, and when Sue offered to write a guest blog post on the topic of our discussion, I gratefully took Sue up on her offer!
Therefore I’m turning this blog post over to Sue for a guest post on the topic of MSP contracts. Take it away Sue!
Talking with Richard recently, I learned that one question which crops up time and again for MSPs is just what does the fixed fee include? And, possibly more importantly, what is outside the scope of the support contract?
So when can you tell the client that the request they have just made is not covered by the fixed fee support contract and there will be an additional cost if they want to proceed? It all comes down to specifying clearly at the outset the service you are providing for the fixed fee. Easier said than done, you might say, so let me try and give you some pointers.
What does your fixed fee include?
You are the IT expert so far as your clients are concerned. However good they are in their own field, clients will rely to a greater or lesser extent on you to advise what they need. From a legal point of view, provided you specify what the fixed fee contract includes or excludes, you will be able to tell your client whether their request falls inside or outside the contract. However, from a client relations point of view, I don’t think it will lead to happy clients and repeat business for you if the client is told that work they might reasonably have thought of as routine support is in fact outside the scope of their contract – unless that is made clear from the outset.
It’s your service, so you need to decide what you are prepared to include. That decision will be driven by a number of factors including economic, commercial and practical considerations. Unless you are going to run it as a loss leader (unlikely I anticipate!), the service needs to be financially viable for you. At the same time you still need to attract and retain clients in a competitive market. As a result, your fixed price will no doubt be a balancing act between covering your costs with a margin for you and pricing to be competitive.
Clearly the services you offer have to be what you can deliver within your existing or planned resources, so your offering needs to be designed accordingly.
Options for Support Cover
Speaking from a client’s perspective, my suggestion to you for your starting point as the IT provider, would be to work out what the average business client might be reasonably expected to need in terms of IT support for the period of the contract and cover that in your fixed fee offering. If your client base falls into a number of differing categories – for example with some likely to require much more support than others – then you might want to consider a range of options. You can then steer prospective clients to the package you consider more suitable for each.
Offer Clarity. Be Specific.
You may decide that my suggested starting point results in a package which is too expensive or too comprehensive to be competitive and that you need to make savings in terms of services offered within the package and/or the price. That is obviously a commercial decision for you and is a perfectly sensible business approach.
From a contractual point of view, what I would advise you to do is to set out your offering as clearly as possible in as much detail as is required to make sure that the prospective client understands what the package covers and, if necessary for clarity, any exclusions. Spending a bit of time and effort in formulating your package and describing it so that clients understand what is covered will be key to minimising room for future misunderstandings.
I can’t conclude without my final piece of advice which is – as I’m sure you won’t be too surprised to hear from a business contracts lawyer – make sure that your carefully formulated fixed fee package is protected in a sound contract with your client!
About Sue Mann
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