Software as a Service agreements are a hybrid of license and service agreements. These agreements are a service in that functionality is provided to the client, but they are also a license because the functionality involves the remote operation of a software.
A successful SaaS agreement can reference a variety of clauses that can be beneficial for both the service provider and the customer. As a customer, it is important to review clauses that may require negotiation for your benefit. The following are topics that may arise in a Software as a Service agreement that may require your consideration.
The Agreement’s Terms of Service
Your company or business should have a discussion on the commitment to a particular service agreement. In the event a SaaS agreement establishes a default term, there may be an opportunity to change the term with the provider’s representative. Contingent on the term, negotiating a discount may be possible.
For the most part, long term contracts can be beneficial, as they can affirm that the service will continue to be delivered as promised. With that said, it is important to ensure that there are appropriate clauses that will let you out of the agreement should a significant matter occur, or not occur. This can include the service provider going bankrupt, your service expectations were not met, or there were violations in the contractual agreement.
Pricing and the Potential Changes to a Set Price
Generally, when a service provider agrees on a set price, the company will honor the price as it was promised. Nonetheless, as a customer, it is critical to review the contract and be mindful of precarious language that can leave room for the service provider to change or increase the set pricing. It is critical to negotiate such language, like adding notification language that would notify you should a change in pricing is forthcoming.
Making Payments on the Service
Payments can be a hot topic in many SaaS agreements. Every company will have a different policy on the matter, but you will need to understand what the service provider’s payment terms are. Will you need to pay the service provider in full within 10, 30, or 60 “net” days of when the goods are provided? Will you need to make any upfront payments? Many customers make the mistake of assuming their payment policy is the same as the service provider.
Payment terms should be discussed and negotiated if needed be. In some cases, net 30 and net 60 terms of payment will be coupled with credit for an early payment.
Maintenance or Support Costs
A majority of SaaS services require maintenance, like providing support for staff, making upgrades, and time spent resolving service issues. Although most SaaS agreements will not consider this as this is typically seen as an in-house issue, it is good practice to be mindful of such clauses as they can add to the overall cost.
Service Level Agreements and Penalties
Service level agreements, also known as SLA’s, are common when the agreement is in web-development, the software industry, or is a general web-service. SLA’s will provide a commitment to provide an adequate service. As a customer, you will want the service you are paying for to have maximum uptime and be reliable. It is common to see these commitments in the contract represented in percentages and it is beneficial to know what considerations and formulas the vendor is using to calculate their uptime.
SLA’s should also call out for possible penalties when there is a failed delivery or a failure to stay true to a commitment. When there are per occurrence penalties, it is important to consider pushing for stricter penalties to ensure there is reliability from the vendor and ensure commitment.
The Renewal Process
When entering into an agreement, there may be an opportunity for long term commitments for both the service provider and the customer. In these situations, discussing a renewal process is important, such as when will the renewal process commence, will a notice be provided, and whether there will be a discount or a price increase. It is also important to discuss whether the current agreement can be amended with an extension for the service or if a completely new contract will be required.
Possible Discounts
Customers should always ask for discounts even if one is not being offered. In many cases, discounts are provided by simply asking for them. For example, a discount can be given for custom services, over renewals, and as sign up discounts.
Data Recovery, Losses, and Data Transferring
Every machine is prone to failure, and this includes computers, networks, and servers. As a customer, you will want to ensure there is a loss policy for data recovery. You will want to know how the service provider will handle issues such as outages, information losses, and what the provider will do to retrieve the lost data. Also included in the contract should be a policy that outlines what will happen if the data cannot be recovered.
Data recovery policies can be particularly important when the data is being transferred from one service provider to another. Data transfer can be a sensitive matter and you will want to know how the data will be transferred and how long it will take. A majority of service providers will include data transferring costs in the pricing model they propose but in some cases, they will have this as a separate fee.
Data Security
Data breaches are a harsh reality of our times and it is a problem that can happen to anyone. A SaaS agreement should outline the steps the service provider will take to ensure the services you provide are protected and do not lead to breaches that could potentially compromise the integrity of your business.
Discuss Your SaaS Agreement With a Knowledgeable Attorney
The main purpose of a SaaS agreement is to set the roles of each party and their responsibilities. Although contractual templates are available online, it is highly beneficial to obtain the legal support of a qualified Saas attorney who will advocate and negotiate on your behalf.
