Best Effort And MSP liability 2024

Best Effort and MSP liability are the highlights of today's article by discussing their importance in the context of managed IT services for businesses.

I am not a lawyer, if I see a courthouse, I make a point of crossing the road. Conflict is not an arena I enjoy and the world is littered with failed MSPs who put all their effort into taking on a much stronger opponent legally because they believed they were morally right.

I once had a client that was consistent in the ability to pay their invoices late, I am talking a minimum of 6 months late after constantly reminding.I had not long started as managed service provider and at a time when I put up with that behavior and was not yet in the position where I could vet and select good clients.

It would have been about 4 years after starting my own MSP and they had been a late paying client (commercial glazier) for around 3 years at that stage. I was going through a period where cash was not plentiful and they had started to pay even later than normal. Doing the books I noticed that the client had around $25,000 of overdue invoices over maybe 30 invoices for backup related services among others that were outstanding.

It was a great deal of money outstanding for a small relatively new business and one night I decided that after having been ignored again and after more promises had been broken, I was going to show I meant business (oh dear)

So I logged onto the local courts site and downloaded the official final demand form and sent that to them fully expecting they would pay up and do so in a groveling apologetic way.

Imagine my surprise when I received a letter soon after with a countersuit for 60K or whatever the maximum was that could be handled by the small claims court. To say it had me perturbed was an understatement. 

My business was insured for these sorts of issues or so I thought. It turned out that at some point exactly halfway through the period where the invoices had been outstanding, I had migrated over from an individual offering services, to a pty ltd company in a trust.

That is the right and responsible thing to do as a growing MSP business trying to stabilize its income however I did not mention this to the insurance company and their response was that we will cover either the sole trader or the pty ltd company but not both as they were legally separate entities.

Because the invoice spanned exactly halfway between both in number and value, it made no difference and the insurance advised if I hired a lawyer for the other entity, they were not allowed to communicate with each other even though it was the same actual business in reality.

Even back then in the early 2000s, a decent lawyer for this was $700 per hour. The end result was that they settled for about 15K and it nearly cost me 15K so I would have been better off having just walked away from the debt I was owed.

My point here is that the court system is not there to provide a fair outcome, in most cases, everyone wins a prize and my time invested in that whole ordeal could have been better spent on constructive efforts rather than adversarial and destructive activities.

What I sort of knew at the time was that the company that owed me money was good at this sort of thing. In actual fact they had in the past gotten me to recover information from an ex-employee's computer for a court case against him. He was an architect that had been with them for 15 years and they were ruthless. So I should have seen it coming however as the saying goes, life gives you the test first and the lessons later….

There was a method to their madness though and that is by delaying payment of services, they put you on one of those mouse wheels where it is tough to get off. It makes it difficult to say no to someone that owes you significant amounts of money and the balance of power moves heavily into their favor.

Valuable Lessons Learnt

As you become experienced in business, you learn to vet potential clients far more carefully. I would never do large jobs for new clients without upfront payments that covered the initial cost. I used to have a 2K limit for invoices with regards to new clients. That was the total amount I would be willing to do invoiced in arrears so as to avoid the trap of having too much to lose.

One of the biggest traps that I see even medium sized service providers falling into is that of the incoming hero. You all know the drill, a potential new client comes to you telling you some horror story about the last service provider and how lucky they are to have found someone as talented and professional as you.

Which is weird because you just met these people, how can they know how brilliant you are in just a meeting or two, I mean, they are right, you are brilliant so you just brush that thought off.

It causes an instant rift between your onsite support techs and the outgoing service provider. You notice how the backup system is terrible and that during the offboarding process, the outgoing provider is refusing to undertake basic tasks such as removing agents, handing over passwords and just generally making your life impossible.

My advice here is back up for a second. Attempt to establish communication with the outgoing service provider because they are a wealth of information on the client. In nearly all cases I have seen, when an outgoing provider is making your life difficult, it is because the client owes them money and is trying to get out of paying it.

Ethical companies will pay what they owe even when the relationship has broken down to a point it needs to end. Not treading carefully at this point will often see you take on clients that will cost you more money than you make from them.

Initial Network Audit - In Advance

Always charge for an initial IT site audit before any agreements get signed, and my advice is ensure it is in the form of a block hour arrangement paid in advance. Give a little discount for the size of the block if you have to to encourage up front payment.

Formulate a list of discrete questions you can ask their employees while conducting the audit that helps you establish the quality of client they are. Internet research can only get you so far. One of the best indicators is to establish the frequency with which they move service providers.

Service Provider - Potential Client Red Flags

The reason you should be concerned about clients moving too frequently is that moving to another provider is a very disruptive evolution to the business. Doing it more often than every two years or less over say a 6 year period is a red flag so large that you should immediately evacuate the vicinity.

The reason is twofold, first, it shows they do not value what service providers do for their business because if they did, they would not be changing things so frequently, secondly, why? 

There is a reason and it could be conceivable that they have walked into 3 or more dreadful service providers over that time frame. The problem with that is they need to be technically proficient enough to make that call and honestly, how often are clients in a position to do that?

The other option is either a premeditated strategy to bleed each service provider as much as they can before discarding them owing a large chunk of change or they are unreasonable clients and each service provider gets to the 18 month to 2 year mark realizing they will never make the client happy and cuts their losses ending the relationship. 

Offering Backup Related Services

Backups and restoration is an area where service providers are at the most risk legally speaking. Again, this is not legal advice however it is an area that you should probably spend a bit more time investigating how to advise the potential client what you will and will not promise.

Overpromising a backup solution is guaranteed to cause you severe financial pain. If you have been taking a couple thousand dollars each month over an extended period of time and the first time a client asks for something to be restored and you cannot provide it….

Pack your bags and move to Belize my friend because you are about to experience a world of financial pain. It may not even be your fault but if the underlying backup vendor you used has a bug in their application causing a client to be unable to recover their data then the fault will still fall on you.

All I will say is be very careful offering backups that do not have multiple points of failure. Remember the 3-2-1 backup strategy and maybe bump those numbers up to a 4-3-2 strategy to cover yourself. My strategy was always to offer something that was expensive, had an excellent profit margin to account for the higher risk and refuse to offer anything I considered to be a sub standard backup solution.

You will be amazed at how effective offering a high price backup solution becomes when you do not offer cheap backup options. It does not eliminate the risk but it compensates you for the risk you are taking. 

Of course put in your agreement that you take no responsibility for loss of data etc but unenforceable contract terms are not going to save you in a situation like this.

Poor Client Staff Recruiting Practices

The outgoing service provider may have noticed that after doing an effective hours report that their support desk is earning $2.37 per hour across the agreement because they are inundated by time consuming low level support desk calls that are directly linked to the clients poor hiring practices.

Make no mistake, if a client hires morons, no amount of client staff education or good documentation practices is going to help you enough to make up for it. The problem is exacerbated if you have a poor documentation strategy in place.

Good Clients Neglected

Do you know what a good client does when they notice your once great service start to decline? The ones that pay on time, hardly ever call the support desk, hire smart, reasonable staff across the board that are just a pleasure to deal with?

The best clients quietly leave, they will bring it up in a professional and understated way but because you are so busy dealing with the basket case new client that is unprofitable and causes dread for your entire support team everytime the phone rings, your other clients get lost in that noise.

The result is that you are busier than ever, not getting paid and losing money, staff and clients, all because the new client is consuming every waking hour.

End Result - Money Owed And Not Paid

The end result is always the same, it does not matter who ends the relationship, if you are dealing with a litigious client, they are likely to withhold whatever they owe the moment there is a whiff of relationship breakdown. Often that is the end game in these scenarios, clients like this are like the girlfriend that starts an argument on purpose just so you will break up with her.

Whatever the costs outstanding are, the provider will end up eating them just to retain their sanity and concentrate on their good clients.

Litigious Clients Are The Apex Predator

Litigious clients and clients that withhold payment regularly for seemingly numerous and random issues are the apex predator in the business world.

You may have carefully set out the new clients expectations and then reinforced them along the way initially believing the problem was a lack of understanding or miscommunication. Unfortunately with a very small subset of new clients, the pretense of misunderstanding is just a charade.

They do not consider medium established technology partners for their business. Just as a lion does not generally try to eat a full grown bull elephant, for the exact same reason. 

They instead look for the weak and inexperienced because they know their strategies will not work with a bigger more experienced business.

They go to people who have just started a new tech support business, have only been around for less than 5 years and will be gauging the level of inexperience the owner has at the initial meeting. So if you are a young relatively inexperienced service provider, there is around 10% of businesses out there that see you as prey.

Knowing that beforehand may save you some painful lessons.

Service Provider Best Effort

Being an experienced service provider and building it from the ground up, my opinion is that all you can do is your best and by that I mean writing down on paper what you can provide to your clients and then getting that transferred into a general agreement or contract.

Go in with the idea of communicating what you intend to deliver and obtaining confirmation the prospective client understands what you have said. Get them to sign an agreement that reflects the agreement discussed, go through it page by page and have them sign it.

I believe a contract is only useful if you are in a position of power and can afford to fight or both organizations are on the same page and you want to refer to it to clarify misunderstandings over time.

Service Provider Liability

This is not any way meant as legal advice and is only my personal views gained from my experience. I think when first starting out, you should not invest too much time writing bullet proof contracts in the hope they will protect you in every circumstance.

First, they do not exist, show me the strongest contract ever written and I will find you a lawyer that can shoot holes through it. In actual fact, it can be argued that the more scenarios you try to cover and the more that is written down, the easier it is to poke holes in it.

The only reason those long contracts you sign by globally significant technology vendors actually work is because you know full well they have an army of high paid competent lawyers on retainer just waiting for a challenge.

Second and more importantly, even if you have an enforceable contract, you need the finances to back it up otherwise it's no better than toilet paper. In today's environment, my view is that if the amount is less than 25K and you do not have 100K sitting in the bank as a fighting fund then attempt every other avenue before going down the legal path.

Smaller service providers of say below 20 technical staff and certainly when starting out are much better served by coming up with an agreement that's primary purpose is to communicate to both parties exactly what is expected of them.

Don’t get fancy unless you can enforce it. That time is better spent weeding out potentially bad clients that will send you broke if you take them on and use their larger size to crumple up your fancy contract and insert it into an area of your body that could be considered a violation of your person.

Some People Live For Conflict

The vast majority of us want a peaceful life and find conflict in any form to be unpleasant.

It is easy to think everyone is like that but I know at least one person and he is probably the most successful person I know in the business world and he thrives on conflict. He spends more time suing people and in court than he does running his businesses.

The drop of the hat and people he has known for years, he will not hesitate in taking them to court. His company was a client of mine for about 8 years and I never had a single issue, my bills were always paid on time and at one point I shared an office space with his largest company.

I always knew though, I always knew that if there was ever an issue, an argument or disagreement, I would lose. The reason was because conflict wears me down very fast, I hate it, I cannot eat, I cannot sleep until it is over. I ruminate over the fairness or unfairness and tend to go through a period of feeling sorry for myself.

Now think about going up against someone that gets pleasure from conflict, the more the better, the more unfair, the better. The truth is, unless you are willing to go through hell then you will unlikely have the determination to beat someone like that.

It is like a swimming dog getting in a fight with a great white shark. The best advice I can give here is to avoid that fight at all costs regardless of who is right or wrong. Stay focussed on positive goals and tasks unless you possess the same enthusiasm for long drawn out conflict.

New Client Finances

Do not be tempted to send your techs onsite until the advanced payment has been confirmed as this is the very first test to determine if the client is one of their word. You can put the due date as the date of the invoice or “payment due on receipt” and I guarantee about half the businesses will not see that and it will go into the normal rotation of invoices to be paid.

Make it clear to the owner and follow it up by mentioning it in the email that you are awaiting payment to begin the audit. If a potential client either ignores that and a follow up call then they are no longer a potential client, if they jump up and down and try and change the goal posts after agreeing to this then they are no longer a potential client. Walk away as it is the clearest sign you will get that this is going to be a hard client to work with.

Conclusion

The process of obtaining a new client is tough especially for a new service provider who does not yet have a reliable stream of new clients or perhaps enough clients.

There is often a level of hope that clouds your judgment. I see this in my work as a documentation specialist where service providers will automatically put potential clients into IT Glue or Hudu before a dollar has even been paid.

It is something I try very hard to get service providers to do and that is prevent potential clients from syncing across to your documentation platform until the first dollar has reached the bank account otherwise you have introduced another organization that support desk staff now have to waste time considering when searching for other things.

Keep an eye on the effective rate report in a PSA like Connecwise Manage. I understand that a new client is probably going to have a very low effective rate for the first month but you should have an onboarding cost that is passed on that can remove at least some of that noise.

If it gets to month 2 and the client is still bleeding you dry with support calls then it is time to hit the panic button. Re-evaluate what you are liable for in the agreement you came to. Either you are doing work that you did not agree to or you are offering more than you should.

You are not a charity, go back to the client and discuss with them what you are liable for and reset the expectations before it becomes the norm.

We hope this article has provided you with a solid foundation and understanding of the initial service provider offering and how it compares realistically to the liability you face.

We have a number of other client related articles listed below that will provide you with more detailed information on a number of related topics:

https://optimizeddocs.com/blogs/backups/backups-client-index

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