Microsoft LSP Agreement Pitfalls: Hidden Fees and Contract Clause Risks

Microsoft LSP Agreement Pitfalls: Hidden Fees and Contract Clause Risks

Introduction – Why Hidden Fees & Terms Matter

In Microsoft enterprise licensing, companies work through a Licensing Solution Provider (LSP) to purchase and manage software agreements.

LSP contracts are meant to streamline licensing, but they often include reseller hidden fees and sneaky contract terms that primarily benefit the reseller, not the customer.

Failing to consider these details can result in higher costs and reduced flexibility throughout the contract’s lifespan. Read our overview for how you should be negotiating with Microsoft Resellers (LSPs)

For CIOs, procurement leads, and IT licensing managers, awareness of these LSP agreement pitfalls is crucial.

You might negotiate great pricing up front, only to discover later that fine print clauses and extra charges undermine your expected savings.

By understanding where hidden fees and unfavorable terms lurk in Microsoft LSP agreements, you can take proactive steps to protect your budget and avoid unpleasant surprises.

Common Hidden Fees in LSP Contracts

Not all costs in an LSP contract are obvious.

Resellers sometimes add extra charges beyond the standard Microsoft pricing—essentially hidden fees that are not immediately apparent.

Watch out for these fee types that can inflate your spend without adding real value:

• Administrative or processing fees: Some LSPs tack on administrative charges as separate line items (for things like “order processing” or “account management”). Because the reseller already gets paid by Microsoft for your business, these added fees are pure extra cost with no real benefit to you.
• Markups on support or managed services: A reseller might bundle support plans or managed services with your licenses and mark them up significantly. If you don’t truly need those extras (like a premium helpdesk package), it’s usually cheaper to opt out and source such services separately. Otherwise, you’re paying a hefty margin for convenience.
• “Optional” consulting bundled automatically: Contracts often come with “value-add” extras like consulting hours or training that you never requested. They might be presented as freebies, but often have fees baked in. Make sure any bundled service is truly optional, and remove it if you don’t need it—otherwise you’re paying for something you won’t use.
• Penalties for early contract changes or true-down requests: Be aware of any penalties for reducing your license count mid-term (a “true-down”). If you downsize or want to drop unused licenses, some contracts will charge a fee or simply forbid it, forcing you to keep paying for licenses you no longer need. Be aware of the consequences if you need to scale down early.

Problematic Contract Clauses to Watch For

Beyond hidden fees, certain contract clauses can restrict your flexibility or lock you into unfavorable terms.

Always scrutinize the language in your LSP agreement for red flags. Below are some critical contract clauses to check carefully:

• Auto-renewal without clear opt-out: Auto-renewal clauses automatically extend your contract if you don’t cancel within a specified notice period. If the agreement requires, say, 60–90 days’ advance notice to opt out and you miss it, you’ll be locked into another term on the same terms and pricing. This benefits the reseller but takes away your chance to renegotiate or consider alternatives at renewal.
• Restrictions on license reassignment: Watch for clauses that limit how you can reassign licenses internally. Some contracts add constraints beyond Microsoft’s standard rules—such as forbidding transfers between subsidiaries or requiring the LSP’s approval to reallocate licenses. These restrictions hinder your ability to reuse licenses as your needs change.
• Limited flexibility for Azure true-downs or adjustments: Be cautious with any Azure spend commitments. Some LSP agreements won’t let you reduce your committed Azure consumption if your cloud needs decrease. Without a true-down option, you could end up paying for cloud services you no longer use.
• Bundled service commitments tied to license volumes: Beware of services tied to your license count. For example, a contract might include a mandatory X hours of support or training per Y licenses; that means you’re paying for those services whether you use them or not. Sometimes, license discounts are conditional on also purchasing the reseller’s consulting. Such bundles can inflate costs and make it harder to adjust your license volumes, since the services and licenses are intertwined.

How to get the best deal via an LSP, Getting Maximum Discounts via Resellers: 2025 Strategies for IT Buyers.

Hidden Fees & Contract Traps (Summary Table)

For a quick overview, here’s a summary of common hidden fees and contract traps to be vigilant about, and their potential impact:

Strategies to Mitigate Risks

Knowing the risks is half the battle. The other half is actively mitigating them when negotiating and managing your reseller agreement.

Here are some practical strategies to protect your interests:

• Demand fully itemized quotes and contracts: Insist that the LSP provide a detailed breakdown of all costs in the proposal and final contract. This transparency makes it easier to spot any miscellaneous fees or bundled services. If every charge is clearly spelled out, hidden fees have nowhere to hide.
• Remove or cap administrative and service fees: Don’t accept vague “administrative” charges without challenge. You can often negotiate to remove these add-on fees entirely, or at least put a cap on them. Make it clear you know these fees aren’t mandated by Microsoft and that you prefer not to pay extra surcharges.
• Negotiate opt-out options for renewals: Push for flexibility when it comes to renewal terms. Ideally, eliminate any automatic renewal clause. If an auto-renewal must remain, negotiate a reasonable opt-out window (e.g., you can cancel or change terms with 30 days’ notice before renewal). Ensure you have the chance to renegotiate pricing or switch providers at the end of the term instead of being rolled over automatically.
• Separate licensing from value-add services: Treat the core license purchase separately from any additional services the reseller offers. In other words, don’t bundle consulting, deployment, or support services unless you intentionally want them. This way, you can evaluate and negotiate those services on their own merits and costs. Unbundling gives you clearer visibility into what you’re paying for and prevents being forced into unwanted add-ons.
• Engage legal review before signing: Have your legal team or a contract specialist review the LSP agreement before you commit. A fresh set of eyes can catch subtle wording that might create problems later (for example, a hidden termination penalty or an ambiguous pricing term). Legal experts can suggest protective language or edits to the contract. It’s worth the extra time to ensure you aren’t agreeing to terms that put your organization at a disadvantage.

Checklist – Contract Review Before Signing

Before you finalize any Microsoft LSP contract, run through this checklist to ensure you haven’t missed anything important:

• Are all fees transparent and itemized in the contract?
• Do we have the flexibility to reduce license counts or cloud commitments (true-down) and reassign licenses if needed?
• Is any auto-renewal clause removed, or at least clearly under our control with an opt-out?
• Are additional services truly optional and not bundled by default into the deal?
• Has our legal/procurement team vetted all clauses, especially any that seem one-sided?

Pitfalls to Avoid

Even savvy organizations can slip up during licensing negotiations. Steer clear of these common pitfalls when dealing with LSPs:

• Relying solely on the LSP’s explanation of contract terms.
• Overlooking “small print” clauses that have long-term cost impacts.
• Assuming all LSP contracts are “standard” and non-negotiable.

FAQ – Reseller Contract Watch-Outs

Q1: Are hidden fees common in all LSP contracts?
Not every LSP sneaks in hidden fees, but it happens frequently enough that you should always look carefully. Many providers do try to add extra charges beyond the core Microsoft pricing. The key is to scrutinize every quote and contract for any fees that you don’t recognize or that seem unnecessary.

Q2: Can I negotiate away administrative charges?
Absolutely. Administrative fees are not set in stone. If you spot an admin or processing charge, you can challenge it. In many cases, the reseller will remove or reduce it to keep your business. Remember, Microsoft already compensates the LSP for your purchase, so you’re well within your rights to refuse any extra “service” fee on top.

Q3: What’s the biggest clause to watch in renewals?
Auto-renewal is one of the biggest clauses to watch for. If your contract will renew automatically unless you act, that’s a potential trap. It can lock you into another term with the same conditions and pricing. Always check renewal terms closely and ensure you have an opportunity to renegotiate or opt out at the end of the contract. Also, be mindful of any built-in price increases that trigger at renewal.

Q4: Should I unbundle services from the licensing deal?
In most cases, yes. Keeping licensing separate from added services gives you more control. If services like consulting or support are bundled into the deal, you might end up paying for things you don’t need—or paying more than necessary. By unbundling, you can decide exactly which services you want to buy and shop around for the best value. You can always add services later once you’ve evaluated their necessity and cost.

Q5: How do I avoid being locked into auto-renewal terms?
The best approach is to negotiate it out of the contract from the start. If you can’t eliminate the auto-renewal clause, set a reminder well in advance of the notice deadline so you can cancel or renegotiate in time. Make sure the contract’s renewal terms are clearly spelled out, including how to give notice. In short, stay proactive: mark your calendar, communicate your intentions early, and don’t let the renewal date sneak up on you.

Read about our Microsoft Negotiation Services

Do you want to know more about our Microsoft Negotiation Services?

Please enable JavaScript in your browser to complete this form.

Name *

Email *

Company

Message *

Submit