How to Avoid Clients Breaching your Managed Services Contract

“If it’s not in the contract, then it didn’t happen.”

A contract is legally binding for as long as it is in effect. It can also take an electronic form in the modern market. Today, there are still managed service providers who do business through verbal agreement. But having a written contract does have its advantages. It’s to protect the business interests of both sides.

But what makes a good contract?

Making a Well Crafted Contract

A well-defined contract is valuable in managed services. It’s the document that says yes or no to everything. Projects or clients turning bad generally boils down to wrong expectations and lack of communication on both sides. Your best foothold is to make sure you and your client are on the same page from the start. This essentially puts into clear, written language what is expected from you and your client. It should also include room for remedies in case these expectations could not be satisfied.

Duration of service. This is an important element of your contract. For how long will your agreement be in force? Ideally, this should take 2-3 years with provisions for reasonable causes of termination.

Billing structure. This is important because it’s one of the usual first three questions your new client will ask. Have a discussion with the client about what the final estimate includes. And then agree on what will happen if changes are requested beyond the scope of the initial arrangement of the project.

Late payment. Sometimes a late payment can’t be avoided, so you need to provide a grace period for your client. The standard practice is 30 days, but it can be earlier than that or later. It depends on your client. Also spell out late fees and/or interest rates for late payments. This will give incentive to your clients to pay their invoices sooner rather than later. We have a few other tips for avoiding late managed services payments in this article.

Charge caps. This is simply a cap on how much outstanding debt your client can carry. When their total bill exceeds that amount, they will need to make an interim payment or you will suspend your managed service. This is practical when dealing with new clients, even those referred by people you trust. But you can waive this cap if you have a long-standing relationship with a trusted client who pays on time and in full.

Termination of services by client. This should cover what is expected should your client decide to end the contract while it is still legally in force. Is there a termination charge? Also, what specific instances warrant your client to legally terminate the contract even if it’s still in effect? Laying this groundwork assures accountability on both sides.

Specific examples of breach of contract. This is your definition of what a breach of contract is and the damages that comes along with it. You can sit down with your client and agree on what to put in here. Be very specific, and also include what remedy is possible. It’s easier to resolve disputes later on if you have this in your contract.

Avoiding the Breach

The best way to avoid a breach of contract is through a clear understand between you and your client. When your client is unfamiliar with the scope of your services, problems are most likely to arise. Likewise, tension and frustration can occur when your clients are unsure of what they are required. You should communicate clearly with your client about the obligations due in a contract and have this documented. You should also let them know ahead of time if any obligations must be changed or delayed. Of course, this is all done in a professional manner.

Anything in writing can be used in a breach of contract case. Everyone in your business should keep this in mind before you commit anything to paper or computer screen. If you feel a breach of contract is looming on the horizon, recording meetings and phone conversations can be helpful, but keep in mind that it may not be admissible in court in your state. Disputes with your clients are no fun, so it’s best to settle disputes before a breach occurs. It can still happen with open communication and a will to reach an agreement or compromise.

But for those times when a breach can’t be avoided, you and your attorney can litigate your case to a positive outcome. A tight contract, a history of clear communication, and the existence of written documentation can help you call for accountability where it is due.

When It Can’t be Avoided

The first thing to do in a breach of contract is to talk to the right person. As much as possible, try to avoid legal action in any case. Your having to go to court can be expensive and takes a lot of your time. The results too, are unpredictable even if you are certain that you are on the right. Bring the matter to the person’s attention, and see if you can work something out.

If that doesn’t work and you have to get formal, then you can start by sending your client a registered letter. This is to notify them that you feel their actions constitute a major breach of contract. And that you will terminate and seek damages if they do not correct their actions. The next step is either to take the matter to a small claims court or to go get a lawyer. If your last option is to go to court, make sure that these items are present in your contract.

• Written notice of breach of contract
• A definition of obligations for both parties
• Specific examples of breach of contract
• A specific statement of the damages

It’s common to find a breach of contract disputes in today’s court. And it’s practical and wise to avoid them in the first place. But whether you’re facing contract fraud, nonpayment claims, or failure to comply with a non-disclosure agreement – it doesn’t have to be an uphill battle. Be sure to create a quality business contract in the first place. It will ensure accountability both from you and your client. And a quality contract will be your best arsenal should you ever need to bring your case to court.