In the ever-evolving world of IT support, long-term contracts (LTCs) have become a common practice. However, do they exist purely as industry norms, or do they hold benefits for consumers? And are there alternative options to consider?
When searching for an outsourced IT provider, the process can be challenging, particularly because the technical requirements can be confusing to the uninitiated. This leaves many susceptible to the charm of salespeople and the acceptance of contract terms without fully understanding their implications.
Our aim is to shed light on the rationale behind LTCs, explore their advantages and disadvantages, and empower you to make an informed decision when the next contract lands on your desk.
In this article, we cover:
Why are LTCs the norm?
LTCs can extend from one year to as long as five years. But why are these long-term commitments more common in the IT support industry than short-term or rolling contracts?
To understand this, it’s important to recognise that IT support is a service industry tasked with assisting people who often lack technical knowledge and can become easily frustrated by technology hiccups. Businesses also heavily depend on technology for their day-to-day operations. Any interruption to access emails, files, or applications can lead to significant disruptions. As a result, IT support providers face substantial demands and emotions from their clients, which sometimes overshadows their proactive approach and exceptional service delivery.
Given these demands, many IT support providers favour long-term contracts. These contracts serve as a safety net, protecting them from abrupt terminations resulting from a single negative incident. However, this safety net can sometimes become a crutch, hindering the delivery of reliable service or removing a proactive approach to prevent issues from arising in the first place.
LTCs also offer benefits to businesses by ensuring a steady stream of revenue, providing financial stability, and aiding in long-term planning, including budgeting and preparation for changes. Moreover, LTCs can significantly impact a company’s valuation, particularly as Private Equity interest in the IT services sector grows. Increased revenue from long-term contracts leads to more attractive valuation multiples during a sale. Yet, the question remains: Does this truly benefit you, the consumer?
So, let’s delve into what benefits are in store for you as a consumer and what risks you should be mindful of when making your decision.
How Can LTCs Benefit You?
We’ll begin with the benefits of committing to an LTC because it is often assumed that these contracts mainly serve the providers. However, this isn’t entirely accurate.
It is crucial for every consumer of IT support to understand that delivering a reliable service hinges on retaining a skilled team and efficiently resourcing against growth and demand. A reliable long-term income, provided by an LTC, enables IT providers to invest in their teams and plan for future hires. Consequently, an LTC can improve the quality of service you receive, especially with smaller or newer providers.
If your IT provider is well-established and comes recommended by an employee or industry colleague, the risks associated with an LTC are reduced. Long-term commitments facilitate planning, making budgeting and change management more effective. Additionally, a mutual long-term commitment can foster a stronger, partnership-based relationship, with both parties invested in each other’s success. The dynamic shifts positively, with neither party wanting to complicate the relationship when they’re committed for another three years.
It is also worth noting that LTCs can help keep your costs low by allowing IT companies to secure fixed pricing on tools, licenses, and systems, most of which require annual commitments. Failure to commit to these tools may result in increased costs for you or diminished profit margins for the IT provider, raising the risk of partnering with a financially unstable company.
Risks Associated with LTCs
Despite the advantages discussed earlier, it’s crucial to recognize that LTCs primarily serve the interests of IT providers. This isn’t necessarily an issue though since LTC’s are factored into the price you pay so are designed to keep costs low. However, it’s essential to be aware of the other associated risks.
The most apparent risk of entering into an LTC with an unfamiliar company is the potential misuse of this commitment as a crutch for poor service. LTCs may not incentivise providers to seek perfection or maintain consistently high service quality. Knowing that a client cannot easily terminate the contract might encourage a lax approach to service, resulting in subpar delivery. Isolated instances of poor service are difficult to act upon and can be forgotten over time, giving providers an opportunity to rebuild the relationship or hope you will forget about the poor service.
Being trapped in a contract with an unreliable IT provider can have severe consequences for your business, affecting productivity and security. This situation can lead to financial losses due to reduced staff productivity while also continuing to pay a non-performing provider. In such cases, your only option may be to buy out the remaining term of the contract, which isn’t a viable solution for most small businesses. Additionally, voicing concerns and requesting a mid-term exit may prompt the provider to deprioritize your needs, resulting in even worse service until the contract’s conclusion.
It’s important to note that these scenarios are more likely to occur in larger companies managed by significant investment firms. Smaller businesses, where directors are more directly involved in daily operations, tend to avoid such issues and focus on relationships over strict contract adherence. However, if you do not know or trust the provider, it’s wise to exercise caution. Seek references, review case studies, and confirm service delivery standards to mitigate these risks.
Considering Notice Periods and Guarantees
While contract length is a critical consideration, IT support contract terms and conditions encompass more than just this factor. Notice periods and service guarantees are equally important aspects to review.
Notice periods stipulate the duration within which you can terminate the contract. For example, you might need to provide a 90-day notice before the contract’s anniversary or renewal date. Failing to provide notice ahead of time may leave you locked into the contract until the next renewal date.
Service guarantees come in various forms, but their primary purpose is to ensure service quality. If a service quality metric isn’t met, you have a legitimate reason to end the contract. Service Level Agreements (SLAs) are often used to measure service performance, but they can be manipulated to favour the provider. Ensure you understand the details of these guarantees and SLAs, read more about this HERE.
Look for minimum commitments and flexible monthly pricing. Committing to a minimum monthly spend can create difficulties if your needs change, such as headcount reducing. Automatic renewals, while essential for maintaining data security and confidentiality, can inadvertently extend your commitment. Therefore, it’s crucial to set reminders.
Sereno IT’s Approach to Contracts
At Sereno IT, we believe in earning your trust and never locking you into a long-term contract. We understand that selecting a new IT provider is a difficult decision, and trust plays a crucial role in this process. As a result, we structure our contracts to provide you with the flexibility needed for us to earn that trust.
Our standard contracts include a 30-day notice period in the first 12 months. If we fail to exceed your expectations during this period, you have the freedom to leave with just a 30-day notice. This commitment reflects our dedication to maintaining service quality above all else.
After the initial 12 months, we offer a 2-year commitment with a 90-day notice period at the anniversary date. This phase represents a deeper partnership and allows for long-term planning. However, we do not become complacent. With every service contract, we introduce our Partnership Experience Agreement (PXA), where we seek feedback on every interaction with you and your team. If your satisfaction score drops below 95%, and we cannot resolve the issue in 3 months, you are again free to leave with 30-day notice.
We understand the importance of service reliability, and although we want the financial security LTC’s bring, allowing us to invest in our team, we won’t ever compromise our service quality or put you in a situation where you can’t choose to work with us.
Find more about our commercials and pricing in our page.