Business leaders passing contract across desk

Everything to know before you sign a service contract

When you choose to purchase technology services, you frequently sign a contract with the provider of those services. Whether that’s an individual service provider or a big company. Because these kinds of contracts are long-term commitments, they can end up costing hundreds or thousands of dollars.

It’s important to fully understand everything you’re agreeing to before pressing your John Hancock on the dotted line. If a company won’t offer transparent information, it’s best to think twice before signing. You need to understand what parts of these agreements are and are not negotiable so that you have full confidence that the service agreement is fair for both parties. 

Check out our list below of things you need to know before signing your next service contract.

1) What is this Service Contract For?

Although there is no specific definition of what constitutes a service contract, most organizations define it as an agreement between two organizations to provide services of one type or another.  Service Contracts are beneficial for businesses to understand what each party will provide and/or receive. It allows the provider and the receiver to know what to expect as part of normal business but also covers what happens in the event of trouble.  For example if you sign an agreement with a managed IT services provider for cybersecurity support, the agreement should explain what constitutes cybersecurity support.   

2) What Type of Services Will I Be Getting?

When evaluating your options, think about how you want your organizational technology to work.  Do you want consistency with equipment like firewalls, computers, or business phone systems?  Do you need help desk support for your organization that is open 24 hours a day? Once you have clarity around what you expect, you can easily determine if this service agreement meets your business needs.

For example, if they promise 24/7 tech support, are they able to provide that? If they’re promising help desk services, will their team be able to the needs of your organization? If you are buying a business phone system, how many handsets and extensions will you receive, and when will the equipment arrive?  It’s easy to get caught up in a great offer. Be sure to consider whether or not those services are in line with what you really need and expect.

3) What Is the Length of This Agreement?

Some service contracts are multi-year commitments, but there’s no magic length that fits every business. The contract term defines how long your organization will be locked into an agreement with a business partner.  It should also document what happens at the end of that term.  Does your commitment renew for the same length as the original term or switch to a month-to-month agreement?

Longer commitments make it easier for you to budget over time.  However, when you consider how quickly technology advances, it’s best to go with a shorter term if possible.  Otherwise, you could get locked into paying for a service that might not fit with your business’s needs in 18 months.  If you do opt for a longer contract, keep in mind that early termination fees can make it more costly to get out of an agreement sooner than later.

4) What is the total value of this contract?

Usually contracts spell out payment expectations as annually, quarterly, monthly or yearly.  It’s best to understand the full amount you are agreeing to pay over time and weigh those costs against the benefits you’ll receive. Is the product or service you will receive during this time frame worth the full amount you will pay? For example, if you can purchase a business phone system for $3000 and the contract value is $6000 are the additional benefits you receive from purchasing the system from that organization worth the additional cost? Ideally the contract will be fair for both parties involved in the agreement.  It’s best to read the full agreement before applying your signature so that you understand what you are committing to do. 

5) How Much Does It Cost To Early Terminate This Agreement?

Asking this question at signup is a great way to ensure you understand how much it will really cost. Are there early termination fees? It’s crucial to watch out for ETFs when signing a service contract. Understanding what they will be and how much notice you’ll have to give before canceling will help you understand the full value of the agreement. For example, will there be a fee only for closing your account within six months of signing up? Or perhaps only after one year?  If you’re worried about being locked into an expensive long-term agreement, be sure to ask what it will cost if you decide to cancel or break your contract earlier than anticipated. If anything sounds too good to be true, it probably is.   

6) What Are My Obligations Under This Agreement?

After you have read all of the provisions, double check that you understand what the service provider expects of you.   You can cover your bases by asking yourself: What do I have to do for my vendor to do its job? For example, if you are purchasing help desk support for your computers or users, will you need to provide information to the service provider to make the relationship work?  Make sure not only that you understand each provision, but also whether there are penalties for failing to fulfill an obligation. You don’t want a late fee coming back and biting into your profits because you missed something.  

Finally, make sure that any non-compete agreements or arbitration clauses are appropriate for your business.  If it comes down to either one of those routes, is it likely to be worth it? The last thing you want is to get tied up in legal entanglements with an already-signed agreement just because one small part of it isn’t ideal.

7) What Are The Service Providers Obligations Under This Agreement?

Service contracts should include what to expect when the unexpected happens.  A good service contract spells out exactly what both parties are responsible for, so there aren’t any nasty surprises down the road.

For example, is your IT company solely responsible for network downtime or does that responsibility also fall on employees? If employees don’t adhere to IT or cybersecurity policies can the provider still be held liable? What happens if an employee damages equipment? All of these questions should be answered in your service contract.

Another important section to review is the service level agreement (SLA).  SLAs spell out what the service provider is guaranteeing they will provide and at the intervals to expect the responses.  For example, if you have trouble with the application you subscribe to, how quickly will they respond to the request.  What happens if they do not reach that expectation? Will you get service credits? Are there any remedies you can expect? Be sure to read over SLAs.  If they aren’t exactly what you wanted, make sure that to negotiate them before you sign. Having a clear agreement about responsibilities will help reduce any tension when it comes time to deliver on promises.

You’re Not Alone

Finding the right services for your organization, doesn’t have to overwhelm you.  Understanding what you are agreeing to in a service agreement can help your organization tremendously. If you need support, we’d love to help. It’s easy to contact us

Who Is IT Enabled?

IT Enabled is a managed IT service provider.  We help organizations with 5-500 employees tackle technology issues by providing comprehensive IT including network and tech supportsuch as computer, laptop and server supportcybersecuritydisaster recovery options and business phone systems.  Our business is keeping you focused on your business.