The Legal Fundamentals of Running an IT Services Business

<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >The Legal Fundamentals of Running an IT Services Business</span>

Dec 20

Dec 20

Ingram Micro

IT service professionals are fantastic at what they do. They develop and support business-critical technology solutions, and advise their customers on a number of related issues and opportunities. If it’s connected to a network or a chip, chances are they can help.

On the other hand, a relatively small group of IT service providers have a law degree and passed the bar.  But with the number of legal concerns and associated paperwork on a constant increase, VARs and MSPs  have to know the basics, such as understanding when to consult with a specialized business attorney or knowing which situations are suitable for standard contract templates. Those are the two “polar opposite” ends of the legal spectrum ─ with a multitude of issues, contracts and advice in between. Providers don’t have to be experts in these areas, nor should they try, but it’s more important than ever that they have a basic understanding of their liabilities and responsibilities.  

During the Fall 2016 Ingram Micro ONE event, IT business legal expert Brad Gross, ESQ offered up several possible topics that most affect the channel in his session, Legal Parameters for Solution Providers. He kicked off the discussion by highlighting what information should and should not be contained in a solution provider's cornerstone document: the master services agreement (MSA), which is essentially the foundation of the client relationship.

“The master agreement is your constitution and covers everything your company does,” emphasized Gross. “It has 98 percent of the legal language needed to run the business and never changes.”

Many IT services entrepreneurs borrow their MSAs, or much of the language contained in them, from other providers. They may tailor or repurpose those documents to meet their own needs, but there are a few critical issues some fail to consider. One of the most important is what information to leave out: namely, your product and service deliverables.

“That information should never be in there. Deliverables change frequently and the master agreement should only contain legal language that applies globally. The rest belongs in your statement of work," said Gross.

Having multiple versions of MSA documents is also a frequent issue for  long-established and diverse service providers. “Make sure you have one version of your MSA, and, if not, update [it] now," Gross advised. If clients object, tell them your general counsel audited your company contracts and wants to ensure uniformity across the clients. Emphasize there will be no changes in price, services, etc. It’s simply an administrative change, or upgrade.

How long should an MSA be? There is no right or wrong answer on page count, but Gross made some general recommendations. “Keep it simple from a language perspective, but realize there really is no easy way to do some things. In some cases, three to four pages will do it, in others, five or six.” They key is using clear English so your customers understand what your business is committed to do.

What else do you need to know about MSAs?

  • Venue—Always try to include language that keeps potential litigation in your home state. That reduces travel costs and inconvenience, and reduces the chances customers will shop for friendlier court venues. Either insist on using your company’s home state in any legal agreements or try to keep it “silent” (exclude the venue in the terms). In those cases, the location is determined by which party files first.
  • Data ownership—Providers actually have more leeway here than most believe. If customers don't  pay in a certain period of time, you can get rid of it. Data is not considered a deliverable, it’s more of a global discussion, so it belongs in the master agreement, not in the statement of work.
  • Non-compete agreements— In general usages, Gross asserts these are illegal. “You should begin with the premise they are unenforceable and then build on it.” In California, all non-compete agreements are illegal. Those with a reasonable geographic scope and time may be enforceable, but broad restrictions will likely be easily quashed and could be costly to defend in court. Non-solicitation clauses, which restrict former employees from taking your clients or employees, offer more legal protections in most locations.

Topics: Ingram Micro, legal issues, business planning, ingram micro one