Words matter when you’re doing business and it’s easy to get trapped in a bad contract if you’re not familiar with the language used in technology services agreements.
We’ve identified 34 key issues in IT services contracts that you need to be aware of when you’re negotiating. In this article, we’ll walk you through 8 of those. Be certain to redline your agreement according to your conditions and the type of service that you’re requesting.
1) Acceptance Testing
It is important to ensure services are performing in accordance with the specifications as defined in the agreement. An acceptance testing process should be incorporated whereby payment is triggered after the service has been tested and accepted, to ensure that everything works properly and adapts to your environment.
2) Scope of Services
There must be a crystal clear, contracted understanding regarding the scope of the services from the beginning. Otherwise, as a customer, you could wind up paying for additional services that should have been captured in the original scope.
3) Business Downturn
Your company may experience changes in business conditions that necessitate a reduction in the use of a service. In such a “business downturn”, it would be beneficial to have a clause that enables the customer to reduce their original commitment level.
4) Maximum Rate Protection
At the end of a term, rate hikes should be contractually considered to protect your business against any rise. It is important to know that most IT services experience price erosion over time, not price increases.
5) Early Termination
Sometimes there are unavoidable events that necessitate early termination of a service. Providers should price for this risk, at least partly, and not make ETFs (early termination fees) a potential additional expense. If it’s not considered in the initial negotiation, ETFs can amount to 100% of the remaining service term obligation.
6) Order of Precedence
The order of document precedence, in descending order, should be:
- Amendment to the MSA
- MSA
- Service order
- Other documents
If you don’t follow this order in the negotiation, harmful or unsolicited terms can be incorporated into a service order, such as auto-renewals.
7) Payment
It is important to pay only undisputed amounts for services. Providers should be limited to suspension or termination if undisputed charges are not paid.
Providers will attempt to tie the service and billing commencement dates together. That is a common trick that could make you responsible for paying for potentially poor service before testing and acceptance.
8) Service Levels
Service levels should create a landscape that encourages the satisfactory provision of services. The service level construct must include meaningful performance credits for deficient performance.
Below are key SLA terms that will help encourage the satisfactory provision of services:
- SLAs are not suspended during the provider’s routine or emergency maintenance windows.
- SLA performance credit periods are not triggered upon the customer opening a trouble ticket. Instead, they are triggered when the problem starts, as determined by root cause analysis.
- Termination rights for “Chronic Trouble” and “Critical Failure.”
StrataCore has vast experience negotiating complex IT services contracts and a large library containing preferred positions.
Schedule a call with an advisor if you’d like to further understand problem areas in IT services and their related legal language. We can help you avoid bad contracts and secure the best terms for your technology service agreements.
