7 Mistakes MSPs Make with Client Contracts

You’ve won the client, you’ve agreed upon the scope of service, and you and your team are ready to spring into action. But there’s one step in this process you still need to get right: the contract. Building robust client contracts to secure profitable relationships, manage risk, and ensure compliance is an essential pillar of your MSP business.

Yet many MSPs rush contract details, and use outdated language that can lead to costly operational inefficiencies and financial losses. Given how fast things move—both within MSP businesses and in the regulatory landscape—you have to pay very close attention to every clause in your agreements.

So, what are the common contract mistakes, and how do you avoid them? Read on for your contract checklist.

1. Not Aligning Pricing with Market Rates—or Business Goals

We covered this point in our 9 Quick Wins To Turbocharge Growth for Your MSP Business, but it’s so important we’re saying it again. One of the most common mistakes is using fixed pricing models that don’t account for the changing cost environment. Contractually locking in fees while vendor prices, labor expenses, and market conditions evolve can erode your margins over time.

How to avoid it:

–    Include escalation clauses: Embed specific provisions for periodic pricing reviews. For example, tie pricing adjustments to inflation, rising vendor costs, or increased service demands. 

–    Review contracts periodically: Schedule quarterly or annual audits of contract terms to ensure your prices remain competitive and reflective of current costs.

–    Set out your payment terms: That means having invoicing and payment timelines—with late-payment penalties. This is your ticket to steady cash flow.

2. Overlooking Risk in Vendor Contracts

As an MSP, chances are you’re relying on third-party vendors for software, hardware, or specialized services. Outsourcing can be powerful, but one common mistake is failing to transfer or mitigate the risks associated with these vendor contracts. When vendors underperform or have issues (say, a lengthy service outage), you may end up bearing the burden, exposing your business to unexpected liability.

How to avoid it:

–    Specify indemnification clauses: Clearly outline vendor performance expectations and include language that limits your liability if a vendor fails to deliver. 

–    Set risk caps: Define maximum liabilities and include triggers for contract review or termination if vendors do not adhere to agreed standards and services.

Addressing vendor risk head-on in your agreements ensures that you—and your clients—are not left picking up the pieces when third-party issues arise.

3. Ignoring Cybersecurity Responsibilities

Cybersecurity is at least as critical as any other operational element. Yet many MSP contracts omit clear, up-to-date cybersecurity responsibilities; which leaves them exposed in the event of a breach and can result in compliance violations, as well as significant financial and reputational damage.

How to avoid it:

–    Define cybersecurity standards: Incorporate detailed provisions outlining both your responsibilities and the client’s obligations around data protection, incident response and compliance with standards such as GDPR or HIPAA. Set expectations now to safeguard later.

–    Regularly update protocols: As threats evolve, so should your cybersecurity clauses. Regular revisions should reflect current best practice and regulatory requirements.

4. Failing to Incorporate Legislation and Standards

Laws and regulations are changing at a breakneck pace. Many MSPs risk exposure by using contracts that do not reflect current legislative requirements or evolving industry standards. Outdated contracts can lead to non-compliance, fines, and costly legal disputes.

How to avoid it:

–    Schedule legal reviews: Set up a regular process, such as an annual review, to assess and update contract terms in line with new legislation and industry changes. 

–    Get a lawyer: Maintaining an ongoing relationship with legal counsel or subscribing to contract-management tools will keep you updated on regulatory developments, ensuring your client contracts remain airtight and compliant.

5. Letting Scope Creep Sneak Up on You

We’ve all been there: you’re working on a project and the list of wants and needs slowly starts to grow, without deadlines shifting or costs rising. It’s the same with service scope in contracts. Ambiguous, vague, or overly broad service definitions often lead to this scope creep, which results in misaligned expectations, disputes and, ultimately, diminished profitability.

How to avoid it:

–    Be explicit: Clearly define which services are included (and, just as importantly, which are not) within your agreement. 

–    Integrate change-management clauses: Outline a process for negotiating and approving any expansion of services, including revised pricing (see point 1 above) and timelines.

6. Not Updating Outdated Contracts

Perhaps the most crucial error lies in simply not updating your contracts. Contracts should not be static documents. Outdated or non-optimized agreements that don’t mirror current cost structures and risk factors can be a major revenue drain. This loss can translate into five- or six-figure profit losses for mid-market providers.

How to avoid it:

–    Build a master service agreement: This document helps you set out how you will work with clients. This is where you can include your basic agreements like payment terms. Not only can you use this for all your clients, but it means you don’t need to produce an entirely new contract every time something needs updating.

–    Add in service-specific contracts: This is the part that defines what you will provide to the client. If something needs updating at any point—for example if there’s a shift in regulation—this is the part to update.

–    Automate reviews: Utilize legal or contract-management platforms to streamline routine audits, ensuring that your agreements stay aligned with what the market is doing. Automated workflows can trigger reminders for key milestones like renewals or renegotiations, ensuring that nothing slips through the cracks—and saving you time and effort, too.

7. Not Handling Client Refusals of Services

It’s not uncommon for clients to push back on recommended services such as essential cybersecurity updates or vendor risk management measures. Refusals can be challenging, especially when those services are critical for protecting both client and provider.

How to avoid it:

–    Educate your clients: Clearly articulate the service they’re declining, the importance of each service and the risks to their business. Using data and examples of potential risks can help drive the discussion. 

–    Offer tiered options: Instead of an all-or-nothing approach, provide tiered service packages that allow clients to choose a level of coverage that fits their budget and risk appetite. 

–    Document client decisions: Include contractual clauses that specify the implications and risks if a client declines core services. This sets expectations from the start and may also shift some liability to the client in the event of an incident.

It’s time to stop thinking of contracts as just paperwork and a legal safeguard—yes, they’re a business necessity, but they can be optimized for growth and revenue. Proactive contract management is going to save you time, money and a whole lot of worry. Stay on top of this, and it can be the start of something great—for your business and your client relationships.