Framework Agreements: the customer contract model for technology service providers

18 January 2022

Many businesses lack comprehensive in-house IT expertise and resources to fully implement and manage all of their IT infrastructure requirements. IT managed services providers (“MSPs”) and IT consultancies plug the gaps by typically offering a diverse range of IT services and products to lighten the burden on their customers’ in-house IT teams (or to even remove the need to have an in-house IT team). General technology consulting services, IT support helpdesks, software development services, reselling third party software, server hosting and data backup and recovery services serve as a snapshot of the variety of products and services that an MSP or IT consultancy may offer to its customers, whilst essentially acting as their outsourced IT team. 
 
Having a diverse product and service offering serves as a challenge to MSPs and IT consultancies when it comes to putting in place an appropriate set of standard customer-facing terms and conditions. By way of example, a contract for the supply of consultancy services is very different to a software development agreement and so it’s risky for MSPs and IT consultancies to adopt a single/simple set of terms and conditions which attempts to cover all of its service and product offerings. Having an inappropriate customer contract in place could result in the omission of key clauses relevant to specific services or products, such as those which are necessary to reduce or exclude the supplier’s liability under the contract. 
 
MSPs and IT consultancies can strike the right contractual balance by utilising Framework Agreements (also commonly referred to as Master Services Agreements). A Framework Agreement provides a mechanism for a customer to order multiple services and/or products from an MSP or IT consultancy on the basis that each order is governed by the same set of overarching standard terms set out in the Framework Agreement. A separate document – a Work Order – is entered into by the parties to document each order for a particular service or product including specific terms relevant only to the provision of that service or product (whilst incorporating, by reference, the standard terms set out in the Framework Agreement). Together, the Framework Agreement and all of its corresponding Work Orders constitute a single contract. However, MSPs and IT consultancies need to tread carefully to ensure that their Framework Agreement and Work Orders are fit for purpose from a structural perspective. We’ve flagged a handful of common pitfalls below:
 
Term and termination. As with any contract for the supply of goods or services, a Framework Agreement needs to include provisions within it to govern its duration and, in particular, the terms of its expiry or termination. Perhaps it may terminate immediately at the end of a fixed term, or one or both parties may have a right to terminate the agreement on notice. In addition, both parties may have rights to terminate a Framework Agreement immediately for ‘cause’ i.e. following a material breach by the other party or the other party’s insolvency. 
 
However, irrespective of how the Framework Agreement comes to an end, it’s key to ensure that it contains provisions which govern how any such expiry or termination affects the corresponding Work Orders which deal with the supply of the specific services and products. Whilst it seems clear that termination or expiry of a Framework Agreement should prevent any new Work Order from coming into force, there is flexibility as to the effect on existing Work Orders, which can either terminate immediately on any termination of the Framework Agreement, or remain in full force and effect until completion of the provision of the supply of the services or products under them.   
 
Precedence of terms. After a Framework Agreement is put in place the parties will enter into Work Orders as and when specific services or products are required, and there is therefore potential for Work Orders to contain terms which conflict with those set out in the Framework Agreement. In the interests of clarity and certainty it’s therefore prudent to ensure that a Framework Agreement explicitly states which set of terms will prevail where its terms conflict with those in a Work Order. 
 
If an MSP or IT consultancy has an extensive product and service offering, they may anticipate and welcome the ability to insert service/product-specific clauses in Work Orders which prevail over any contradictory and inappropriate ‘standard’ terms set out in the Framework Agreement. By way of example, where a Framework Agreement states that the intellectual property rights in any software supplied by the MSP or IT consultancy is to be licensed to a customer, that position may need to be changed where the supplier carries out bespoke software development work for a customer and so software needs to be assigned to the customer (allowing the customer to own it outright). In those circumstances, the Work Order relating to the development work would contain the IP assignment terms and the Framework Agreement would make it clear that the terms of Work Orders prevail over any conflicting default terms in the Framework Agreement.
 
If an MSP or IT consultancy has a limited and cohesive product or service offering which is unlikely to be changed in the future and so there is unlikely to be substantial variation in the content of Work Orders, then the main purpose of the Framework Agreement will be to ensure consistency. This can be achieved by expressly stating in the Framework Agreement that its provisions will take precedence in the event of any conflict with the terms of a Work Order. 
 
Limitation of Liability. Any limitation of liability provisions in a Framework Agreement will apply in respect of the services and products provided in the corresponding Work Orders. As such, MSPs or IT consultancies looking to cap or limit their liability in respect of general areas of risk which are likely to apply to all services and products provided (such as breaches of confidentiality), should ensure that those caps and limitations are clearly stated in the Framework Agreement.
 
However, an extensive service and/or product offering may require a range of specific liability caps and exclusions to be applied to certain products or services. A service which involves the processing of significant amounts of sensitive customer personal data may require a higher cap on liability than a service involving the supply of hardware, in which case bespoke liability caps will need to be added to the relevant Work Orders. 
 
MSPs and IT consultancies with diverse service and/or product offerings are at risk of losing the confidence of customers by providing them with ‘one size fits all’ contracts which clearly aren’t fit for purpose. The use of a Framework Agreement, in conjunction with appropriately tailored Work Orders, should serve to eliminate that risk. In addition, use of the Framework Agreement model should facilitate the swift conclusion of contractual terms whenever a customer orders a new service or product.
 
If you would like advice on Framework Agreements, then please do contact one of our specialist technology lawyers here.
 

About the author

Andrew has a broad range of expertise in corporate law, regularly advising in respect of share and asset sales, investments and share options (in particular EMI schemes). His commercial practice is focussed on drafting and negotiating technology contracts, although he also advises in relation to a wide range of commercial issues, such as intellectual property, branding, data protection and sponsorship arrangements.

 

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