While SaaS has simplified enterprise software in many ways, you will still need to review, negotiate and execute a fairly complex contract when subscribing to an “enterprise-class” system. In this post, we will walk you through the nine most important things to consider when negotiating your SaaS agreement.
These are usually taken up by the sales and or the business teams to be discussed within themselves and are greatly negotiated before beginning the legal negotiation process. The commercials include pricing, payment terms, taxes, billing methods etc.
- The liability cap
Once the legal negotiation takes place, the most important clause is the liability cap, as this acts as saviour for both the parties in matters of claims if any bought against the party and what shall be the limit of the liability brought. It is to be understood that usually a liability cap is put in an agreement to safeguard a party of any potential liability that may occur and saves the opposite party from unlimited liability.
- Intellectual Property rights
It is important to note that the IP rights are of utmost importance, and while discussing SaaS products it becomes imperative to decide what IP will belong to whom at the beginning of the negotiation. This should be clearly stated and mentioned within the Agreement. It is standard practice for SaaS providers to provide customers with an indemnity in the event that a third party claims that the use of the SaaS software by the customer infringed the third party’s intellectual property rights (IPR). Where SaaS arrangements are established on an international basis, the IPR indemnity needs to be sufficiently broad to protect your business in all jurisdictions in which the software will be used.
- Effect of termination
Yet another important aspect of a SaaS product is what happens when the agreement is terminated, what happens to that data, where does the data go. How long does the customer have access to the platform, how is their data deleted. How frequently does your business data get backed up and how does it get backed up? All these shall be precisely and appropriately covered in an agreement.
If you are negotiating with a vendor over pricing discounts, subscription metrics and additional fees, expect to give something in return. Oftentimes, this means committing to an extended contract term. Vendors like longer terms because it provides more predictability in their revenue forecasting. Terms can be as short as 30 days or as long as five years.
Indemnification requires one party to pay for defense costs and any damages awarded when a third party makes a claim against the other party. It is critical for the parties to understand when they will be required to indemnify the other party and whether the limitations of liability will apply to an indemnification claim. It is important to ensure the contract provides indemnification for data and security breaches as well as intellectual property infringement.
- Service Level Agreements (SLAs)
Regardless of what you pay for the system, reliability is paramount. The SLA is the vendor’s commitment to keeping the system up and running. It is typically expressed as a percentage of “up time.” You will almost always see the SLA represented as 99.9% or thereabouts. However, there is wide variation in how that number is calculated.
- Data Protection provisions
It is vital that comprehensive GDPR-compliant data protection provisions are included in your SaaS contract. A complete differentiation between processor and controller and respective obligations shall be set out in the Agreement.
- Data Export
Finally, you will want to include a clause about data export. Two things are key here: you should always retain ownership of your data and you should know how to get it back. This will be most important in two scenarios: 1) if you want to migrate to a new system because you are unsatisfied; or, 2) the vendor goes out of business and you need access to your data even before you select a new system.
Generally, cloud service contracts contain many of the following warranties: (1) that the service will materially conform to the documentation, (2) the services will be performed in a workmanlike and professional manner, (3) the provider will provide the necessary training for the customer to use the services (4) the provider has sufficient authority to enter into this agreement
Other important aspects of the SaaS negotiation process are, namely:
- Disclaimer of Warranties
- Force Majeure
- Sometimes even Survival clause is debated and negotiated in an SaaS agreement
- Confidentiality provisions, so on and so forth.
When it comes to SaaS products, one should always keep in mind to disclaim the warranties regarding its products. Since everything happens on cloud over the internet the inherent risks shall be disclaimed to the customers and the fact that certain things are a part of the nature of services.