A Managed Services Agreement (MSA) covers the terms and conditions of IT managed services providers (MSPs). These agreements address the customers’ IT needs, such as software support and maintenance, data storage, recovery and backup, network monitoring cloud services and more.
Recent large-scale cyberattacks and privacy breaches impacting millions of Australian Medibank and Optus customers have highlighted just how critical it is to have clear agreements in place.
These legal agreements – or contracts – offer vital protection for MSPs by outlining the details of an IT company’s relationship with its clients. Ultimately, these terms and conditions aim to reduce the likelihood of being sued by your customers and limit your liability in disputes.
MSAs need to address all the relevant legislative requirements, including but not limited to:
Australian consumer law;
The collection, storage and use of electronic information;
the provision of IT goods and services;
Privacy laws (including compliance with privacy legislation internationally if services are sold overseas);
Data breaches; and
Intellectual property (IP).
What should a Managed Services Agreement cover?
To offer the best protection, your MSA should be comprehensive and specific.
These agreements typically include:
Services or Product Description;
Intellectual Property terms;
Limitations of liability clauses; and
Dispute Resolution Procedures.
Services or Product Description
Your agreement should outline the specifics of what you, as a supplier, will (and will not) provide to the customer ie. data storage, backup, recovery, management, security and software support. It should also specify out how any products or services will be delivered.
If it’s a project, a timeline for completion and the provision of regular updates should also be included in this part of the agreement.
It should also include detailed technical, operational and functional specifications of your product or service, as well as user acceptance testing clauses.
There may also be a need to include a ‘third-party input’ clause if you are using third-party providers. This clause covers your company for any impact to your service that may be related to a fault or issue with the third-party provider.
It’s essential that an MSA outlines your customer’s specific obligations and responsibilities so that all parties are clear about their roles and so outcomes can be achieved in a timely manner.
It may cover areas such as access to data, information, materials etc and how to address situations where your customer may not meet their obligations, which can impact your enterprise.
Intellectual Property (IP)
An MSA needs to include details of IP ownership if your organisation is creating new hardware or software for a client. This is to ensure clarity over who owns the rights to newly developed products.
These agreements may also include details of what to do if IP rights are breached, restrictions on modifying the IP and any licencing agreements between you and your client.
Confidentiality / Non-disclosure
A confidentiality clause is your promise, as a supplier, to handle and store private data and sensitive information in a confidential, secure manner. This helps provide peace of mind to your customer.
It can also include confidentiality obligations on the customer. For example, you can specify that the customer is not to share any quotes you have provided to them with third parties without your written consent.
Your terms of payment are a necessary inclusion and should detail how and when you are paid.
How this is managed is up to your company. Options include progress payments (monthly or fortnightly etc), upfront payment, payment on project completion, etc. This gives you more cash flow certainty as a supplier and protection if payments are not made as agreed.
You may also wish to clarify how any project delays will affect your fees and build in any relevant ongoing maintenance costs and IT checks, which can be a sticking point between IT suppliers and customers.
The agreement should confirm that your company holds the relevant insurances to cover your customers such as cyber insurance, public liability insurance, professional indemnity insurance and workers compensation insurance.
You may wish to include the ability to vary your prices in any agreement. Being able to vary your price helps you manage rising input costs, allowing you to pass these on to your customer. However, you will need to provide notice to the customer before implementing any price changes and allow them a reasonable time to respond to this, to ensure any price variations are legally enforceable.
Auto Rollover Clauses
Auto rollover clauses – also known as automatic renewal clauses and evergreen clauses – state that a contract term will roll over into a new term if written notice of termination is not given by either party.
These clauses are permitted under Australian Consumer Law, though they should be treated with some caution to ensure they are not deemed ‘unfair’ contract terms, such as requiring providing the customer with notice before this is put in place.
This crucial aspect of an agreement covers you for any issues that arise – such as delays and impacts on your company from the use of third-party services or products – and limits your liability for these.
Dispute Resolution Procedures
We all know things can go wrong between suppliers and customers. Having a pre-determined process for resolving any disputes at the outset is highly beneficial. You may choose to opt for alternative dispute resolution processes, such as mediation, to save on time and money. This approach may also help preserve the business relationship with your customer.
Termination / Suspension
At times, it may be best that your supplier-customer relationship be suspended or terminated.
This part of the agreement should stipulate under what circumstances (ie. non-disclosure, failure to meet responsibilities, late payments) you or your customer have the right to terminate or suspend your agreement. It should also outline how you can uphold your legal rights in such situations and cover termination payments, as well as how any payments to third-party suppliers will be managed if the contract is terminated early.
For example, if your customer wants to terminate the agreement before the end of the agreed fixed term, you may be permitted to recover some losses. Australian consumer law permits an MSA to include an early termination fee clause provided the fee is a genuine pre-estimate of the losses you will suffer as a result of the early termination. We often include a pro-rata early termination fee so the early termination fee decreases in line with the agreement’s end of term. However, we note that these types of clauses must be drafted carefully and must be calculated at the time of signing, not at the time of the early termination.
At Quest Legal, we understand the technology and the evolving IT industry.
We advise and manage the legal needs of Australian software developers, managed service providers, and businesses developing or using technology.
Technology Law is just one of our specialty areas.
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