Does Your Managed Services Agreement Address Contract Termination?

When your relationship with a client ends, can you guarantee it will be amicable?

Contract Termination

Breaking up is hard to do, especially when you are good at building sticky customer relationships. Your clients depend on you for managed services, but also things such as firewall configurations, their IT documentation, and maybe even their passwords. Imagine (or recall) a scenario, though, where they aren’t holding up their end of your managed service agreement. They’re a month behind in their payments and went completely dark, or maybe you came to the conclusion to fire them due to scope creep and undue hours you’re spending trying to keep them happy. But then, they refuse to pay their final bill.

Can you turn off managed services or use their data as leverage instead of turning it over to their internal IT team or their new managed services provider (MSP)?

What Does Your Managed Services Agreement Say?

How to terminate your managed services contract is one of the things you and your clients should agree to at the beginning of your relationship. Connectwise, which offers a 12-point checklist for items you need to address in your managed services agreement, puts rules of termination at number five. Connectwise suggests that you outline the rules that both parties will abide by, how you will handle license transfers and who owns data.

Does it seem a little like a prenup? Sure. But it can save both you and your client headaches when it comes time to part ways.

Does an Agreement Always Solve the Problem?

Of course, not all partings of the ways are amicable, especially if you initiate them. Your ex-client could try to say, for example, that they are withholding payment for reasons other than you terminating their contract. They may contend that you failed to meet terms of your service level agreement (SLA) or didn’t live up to other terms of your managed services agreement. Then, you may be served with a suit claiming that you are illegally withholding the services or data that your client claims you owe them.

This is a good example of why using professional services automation (PSA), remote monitoring and management (RMM) or IT documentation can provide the records you need to show that you performed contracted services and met SLAs.

Still, that’s no guarantee the conflict will resolve with you getting paid. The MSP subreddit includes a variety of scenarios that include scorned clients attempting to renegotiate a lower price for their final payments, countersuits, and even arrests for withholding property. Some suggest it’s safer to take the high road and provide the ex-client with what they need and deal with the nonpayment issue separately. Others draw a line in the sand: no payment, no service. Moreover, in some cases, the client doesn’t need anything you’re withholding, or they say they have it under control, but then keep calling for help, even though you wrote the last payment off as a bad debt.

A Crucial Aspect of the Managed Services Agreement

A key takeaway for MSPs is that if you don’t address terminating client relationships in your managed services agreement, you don’t have any leverage at all.

Review your agreements with legal counsel to make sure termination is addressed and that it supports the best way for them to transition to a new MSP as well as ensuring you aren’t facing thousands of dollars of loss.

Conflicts when business relationships end are inevitable. Do what you can to protect your business.


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The former owner of a software development company and having more than a decade of experience writing for B2B IT solution providers, Mike is co-founder of XaaS Journal and DevPro Journal.