MANAGED SERVICES CONTRACT RISK OVERVIEW
Managed services agreements are among the most risk filled and difficult contracts to negotiate given their custom scoping requirements, performance metrics, and lack of transparency around pricing, which hinders the ability to benchmark costs against competitive solutions. To be competitive in these types of engagements, customers must understand and diligently implement best practices to mitigate contract risk within the following agreement areas:
1. Managed Services Service Levels (SLAs)
Managed Services Service levels (SLAs) are the defined metrics in your agreement that dictate the performance or deliverables to which the Managed Services Provider (MSP) will be held. It is common for organizations to have service levels that are not optimized to match key business priorities of the business, which results in poorly-defined SLA terms surrounding services, responsibilities, timelines, and guarantees. And more often than not, services providers will inflate costs for broad scope and service level requirements to cover themselves in case a higher than budgeted service-level is demanded by the customer.
Without a precise understanding of what level of service is required, customers could face higher costs and poor vendor performance, which pose great risk on the business from a solution and financial standpoint
2. Managed Services Price Transparency
Managed Services contracts general include custom volume metrics and bundled service components, but they often lack detailed unit-based pricing and costs for embedded tools, software, and hardware. This makes it very difficult to discern the real costs of the engagement and discern the competitiveness of costs in the deal. When Managed Services providers obscure pricing in this way, they are able to shift negotiating power in their favor, which allows them to drive service cost increases.
3. Managed Services Requirement Definitions
Poorly defined requirements is the #1 reason why Managed Services contracts fail. Within the scope of the services are requirement definitions that explain what needs to be completed by the Managed Services provider (MSP). Defining these requirements is integral in setting solution objectives and determining responsibilities across all parties involved. Unclear responsibility definitions create responsibility demarcation issues and negatively affects the overall service performance provided by the vendor.
This report is intended to improve your own managed services agreements and mitigate the risk of incurring additional
fees with your most strategic services partners. To execute a successful Managed Services deal, negotiators need to be wary of all contract risks and ways to protect or build their negotiation position to achieve the desired contractual revisions. For additional assistance on your Managed Services agreement, review some of the other ClearEdge resources listed below to help plan your strategy and mitigate risk.
HAVE AN UPCOMING SERVICES DEAL?
TAKE THE DEAL STRATEGY ASSESSMENT NOW
Grade your Services negotiation strategy against best-in-class deal data from over 4,000 services sales negotiations that ClearEdge has assisted in, involving the inspection and analysis of more than $10B in IT spend.