Retainer, lease agreement, guaranteed maximum price contract—every industry has terms for a document outlining terms and conditions for engaging in business between two parties. Managed IT services are no different. Managed service agreements (MSA) are contracts commonly used by MSPs, VARs, and IT professionals to establish the ongoing management of a client’s IT infrastructure. Using one can help keep your IT company out of hot water, and using a good one can create a robust and transparent client/company relationship.
What is a Managed Services Agreement?
A managed services agreement (MSA) is a formal contract between a managed service provider and their client. The MSP creates the contract, typically from a template, and sends it to the client for their signature. It defines responsibilities, sets boundaries, and protects both parties from misunderstandings and potential disputes. The IT company should send an MSA before any money exchanges hands and work on the project begins, as it forms the foundation for the business relationship.
An effective MSA goes beyond simply listing services. The contract should evolve with the business, incorporating industry best practices, legal protections, and client-specific needs. This allows the MSA to function as a powerful asset, helping manage client expectations and build long-lasting partnerships.
MSA vs. SOW vs. SLA
It’s not uncommon to hear these terms misused. The inconsistency in applying these terms from company to company can create confusion. However, there is a correct way to use these terms, as each refers to a specific and unique document.
- Managed Service Agreement (MSA): Consider this the “master” document that establishes the overarching terms and conditions.
- Service Level Agreement (SLA): Though they vary in their use, they typically define service expectations and metrics. An SLA comprises one part of an MSA and details specific conditions such as response times, performance standards, compliance conditions, and issue classifications. Violating an SLA can often be grounds for terminating an agreement.
- Statement of Work (SOW): A SOW is a project-specific document that outlines deliverables, timelines, and specific terms for individual projects or services within the MSA framework. These documents are more specific than an MSA. It is possible to have multiple SOWs with a client (if the client approves multiple projects) while only having one MSA.
These documents can work modularly together, like formatting the MSA to reference an SLA for metrics definition and SOW for specific project details. This flexible approach can streamline the contracting process, especially when using tools to expedite SOW creation and scoping.
Learn more: What is a Statement of Work and How to Write One
Why a Managed Services Agreement is essential for MSPs
An MSA ensures clarity, accountability, and alignment between the IT company and the client. In case any party has an issue, they can point to the signed document as a basis to handle the dispute. Beyond simply good business practices, below are the reasons why using an MSA is essential:
Legal protection
An MSA mitigates the risk of disputes and litigation by clearly defining the scope of responsibilities and limitations of liability.
Clear expectations
An MSA outlines services, response times, and performance metrics, ensuring the MSP and client are on the same page from day one.
Financial Clarity
The MSA should clearly state pricing, payment terms, penalties, and potential additional costs. This section provides transparency, which helps build trust while preventing billing disputes.
Conditions control
Using an MSA lets an IT company have upfront defined control over some of the most important aspects of business, like when to get paid, how contract renegotiations occur, and room for amendments.
Streamlined Operations
A standardized MSA template can significantly reduce the time spent on contract negotiations, allowing you to onboard clients faster.
What should be included in an MSP Managed Service Agreement
An effective MSP contains some standardized components, though you can customize each section. Below are explanations of the main parts, but you can also download this MSA template pdf for a complete ready-to-use contract. If you’re writing your own MSA, be sure to include the following:
1. Parties involved
Identify the MSP and the client, including contact information and primary representatives.
Example sentence: This Managed Services Agreement (the 'Agreement') is entered into by and between [MSP Name], a [State] corporation with its principal office located at [Address] ('Service Provider'), and [Client Name], a [State] corporation with its principal office located at [Address] ('Client').
2. Provided services
Clearly define what services are included and excluded in the agreement, naming what the MSP provides.
Example sentence: Provider agrees to deliver the following managed IT services: 24/7 network monitoring, cybersecurity threat detection and response, cloud infrastructure management, and help desk support for end-users (collectively, the 'Services'). Services not explicitly mentioned herein are excluded from this Agreement.
3. Client Responsibilities
Define what roles or responsibilities the MSP expects from the client.
Example sentence: Client agrees to provide timely access to systems and information necessary for Provider to perform the agreed-upon services. Client is responsible for maintaining current software licenses and hardware warranties unless otherwise specified.
4. Term and Termination
State the duration of the agreement and list any conditions or criteria for termination.
Example sentence: This agreement shall be effective for an initial term of 12 months from the date of signing. Either party may terminate this agreement with 60 days written notice.
5. Service Level Agreements (SLAs)
Include performance standards and metrics, such as response and resolution times. If possible, list KPIs the MSP will meet. Adding the SLA in the appendix instead of the body of the contract can make it easier to update only that section in the future, should the service level change.
Example Sentence: The Service Provider commits to a response time of one (1) hour and a resolution time of four (4) hours for critical issues, as detailed in the Service Level Agreement (SLA) attached hereto as Exhibit A. Non-critical issues will be addressed within 24 hours
6. Pricing and Payment Terms
Outline your payment structure and billing practices, including fees, invoicing, and late payment penalties.
Example sentence: Client agrees to pay the Service Provider a monthly fee of [Amount] for the Services. Invoices will be issued on the first day of each month and are payable within thirty (30) days of receipt. Late payments will incur a penalty of [Percentage]% per month.
You may also like: 8 Pricing Strategies for IT Service Businesses
7. Confidentiality and Data Protection
Outline the confidentiality obligations of both parties and address how sensitive information will be handled.
Example sentence: Both parties agree to maintain the confidentiality of all proprietary information disclosed during the term of this Agreement and for a period of [Number of Years] thereafter. Provider agrees to implement industry-standard security measures to protect Client's confidential information and comply with all applicable data protection regulations.
8. Intellectual Property
Clarify ownership of and rights to any intellectual property created during the service.
Example sentence: Any custom scripts, software, or documentation created by Provider while providing services remain the intellectual property of Provider, with Client granted a non-exclusive license to use such materials for their internal business purposes.
9. Limitation of Liability
Protect your business by clearly stating the extent of your liability.
Example sentence: Provider's total liability under this agreement shall not exceed the amount paid by Client for services in the 12 months preceding any claim. Each party agrees to indemnify and hold harmless the other from any claims, damages, or losses arising from the indemnifying party's breach of this Agreement.
10. Dispute Resolution
Describe the process for resolving disputes. Include multiple methods depending on the severity of the matter you are addressing.
Example sentence: Any disputes arising from this agreement shall first be subject to mediation. If mediation fails, the dispute shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association in [your jurisdiction].
11. Amendment Process
Specify how either part can amend or change the Managed Service Agreement.
Example sentence: Any modifications to this agreement must be made in writing and signed by authorized representatives of both parties.
12. Force Majeure
Detail damages or losses that may occur outside of your control.
Example Sentence: Neither party shall be liable for delays or failures in performance resulting from acts beyond its reasonable control, including but not limited to acts of God, acts of war, government actions, or natural disasters.
13. Signatures
Include signature lines for authorized representatives of both parties.
Example Sentence: IN WITNESS WHEREOF, the parties hereto have executed this Managed Services Agreement as of the date first above written. [Signature Lines for Both Parties]
CLICK TO DOWNLOAD MSA TEMPLATE
How to Improve Your Managed Services Agreement
An MSA functions best when you do not forget it but review and update it accordingly. Like each managed IT project can be unique, each client could require custom adjustments to the contract. Incorporating these improvements can enhance client satisfaction, reduce risks, and streamline operations. Here are some tips to elevate your agreement:
Maintain cyclical updates
Periodically review and update the MSA to ensure it remains relevant and reflects any changes to MSP industry standards, client needs, and provider services offered.
Customize for each client
Start with a template to reduce drafting time, but tailor each contract to a client's specific needs. Customizing the contract ensures you address all details, reduce risk, and clarify any points of misunderstanding.
Use Clear, Concise Language
Using straightforward verbiage helps avoid misunderstandings and ambiguities. Clients should be able to understand the agreement without needing professional legal assistance.
Include flexibility for add-ons
Build mechanisms for easily adding or modifying services as your client's needs change. Adding flexibility can be as simple as referencing that additional services can be added through SOWs, removing the need to renegotiate the entire MSA.
Add SLAs or metrics
Adding an SLA goes a long way to establishing trust and guideline adherence. Including KPIs demonstrates the value the MSP will provide while ensuring accountability and high performance.
Address service hours and contact forms
Clarify how clients can expect to get in touch with MSP staff, appropriate forms of communication, business hours, and expectations or restrictions around after-hours work. Outlining appropriate processes for reporting bugs, feature requests, and support requests can protect IT professionals while providing a better experience for the client.
Define Escalation Procedures
Clearly outline how you will escalate issues, both within your MSP organization and to the client. Establishing this escalation process promotes accountability and ensures your team addresses problems efficiently.
Streamline with SOW Integrations
Design your MSA to work seamlessly with SOWs. This approach allows you to maintain a stable core agreement while quickly adapting to new projects or services by adding supplementary SOWs.
A managed service agreement is more than just a legal necessity – it's a powerful tool for building successful, long-term client relationships. By clearly defining expectations, responsibilities, and terms of service, you create a foundation of trust and professionalism that sets the stage for mutual success.
By following the guidelines and tips outlined in this article, you'll be well on your way to creating an MSA that protects your business and showcases your commitment to excellence in managed IT services. To get started faster, download our free MSP Managed Services Agreement template – a customizable foundation for your next great client relationship.
Contact us to learn more about combining MSAs with automated workflows like CPQ services and SOW generation.
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Disclaimer: The Managed Services Agreement (MSA) provided in this blog post is an example template intended for informational purposes only. It should not be considered as legal advice. We strongly recommend that businesses and users consult with a qualified legal professional before using or modifying this template to ensure that all specific legal requirements are met and that the agreement is binding and enforceable.