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Where Thought Leaders go for Growth
Properly designing or negotiating a SaaS contract allows you to make the best preparations to market your software product or benefit from its service efficiently and safely.
Whether you are a software provider or a customer, it’s important to understand the main terms and conditions to obtain a suitable contract. This way you can protect yourself in case of litigation and most of all avoid any unpleasant surprises.
So, what are the essential terms and conditions for SaaS contracts? Let’s find out!
A SaaS software contract, otherwise known as a software as a service agreement, is first and foremost a service contract. Generally, it includes the various parties involved with the software:
The contract establishes a business relationship between the client and the supplier regarding the privacy policy, usage requirements, user restrictions, termination, and potential geographical policies.
Overall, it provides transparency on what to expect when using the service, as well as helps to stay informed on any future updates.
A SaaS agreement should serve as terms for mutual business between the provider and the customer. It should protect both parties. For SaaS providers, it helps ensure that the user is using the services correctly while holding them accountable if they have misused or violated the terms and conditions.
In addition, the user may have to follow certain agreements and clauses like:
If you’re a client with sensitive data, it could be beneficial to check and be aware of how the vendor plans on using your data. Good ideas of questions to ask the software publishers could be:
These simple questions will help avoid any future misunderstandings on both sides of the contract.
Contrary to popular belief, they are not the same.
Usually, a "standard" or on-premise software is installed directly on a computer from a hardware medium (installation disk, for example). As it is physically installed, the contract gives a customer the right to use the software package in exchange for the purchase of a license. In this case, the company will distribute the software for a set or fixed period, normally in exchange for a single lump sum or monthly fee.
While in a SaaS agreement, the software services are delivered through the cloud. The customer gains access to them online, making their service directly accessible and usable generally through web browsers or dedicated applications. It doesn’t involve the purchase of a license, and is more flexible and affordable than a software license contract:
☝️ Their use-cases are therefore different: licenses relate to the right to use the software while SaaS contracts define the terms and conditions of using a service.
With SaaS software, publishers have control over the entire service, including the data and the information systems infrastructure.
As such, the contract is of vital importance in defining the scope of the service provider's involvement and the usage rights of the service over a given period.
Here are the main points to take into account during your negotiations.
As we established, the customer does not pay for a license and therefore takes out a subscription. The contract determines the terms of the chosen subscription, including:
We’d recommend finding out in advance what the pricing includes. Additional costs may be incurred for certain overruns that occur after the contract is signed (e.g. storage, premium support, API calls, etc.).
A clause dedicated to application performance can be included to guarantee a short response time. For example, several network connections can be provided with the SaaS application to limit slowdowns.
To protect themselves, the service provider may also insert a clause to inform the customer of potential Internet hazards or issues that may lead to lower performance or service interruption.
The availability of the service and maintenance must also be included in the contract. An added clause such as this one works to ensure the service provider is committed to the 24/7 availability of the SaaS software for the customer.
Although in reality, most companies tend to have 99.9% uptime. Which is probably all you’ll need!
This same clause should include details on maintenance-related interventions, such as:
Ideally, the provider will warn the customer of any scheduled interruptions at the risk of being held responsible for the possible consequences.
These clauses ensure the highest security of the service and the client’s data. In general, they stipulate that the parties (especially the provider) agree to implement the following actions according to specific aspects:
The provider is responsible for implementing measures to limit fraudulent use of data and to prevent loss or corruption of client data.
It is essential to work with a provider that offers support, in case any malfunctions were to happen.
Some companies offer 24/7 customer service via phone or email, while others only provide support during certain business hours and only through certain means (email only, etc.).
💡 Clients should ensure that their subscription plan offers the amount of support that the business needs
If the software provider offers support by phone, it is important to identify the availability of their customer support representatives, especially if there is a substantial time difference between the provider and the customer.
The list of clauses is not exhaustive and will depend on the type of SaaS contract. Always check the conditions and stay informed of any updates.
When entering into any agreement, it's important to first define what you mean by terms like "solution", "software", "user", or "provider", as well as all technical terms in a precise and clear manner.
Likewise, including a detailed description of the purchased services records their characteristics. This makes it possible to refer to them if changes are made to the product during the subscription period.
Make sure to use unambiguous language in any written agreement or contract. For example, software publishers should avoid terms like "license", which could lead to confusion in the event of litigation in court.
To help you draft or negotiate a SaaS contract, you can use examples or online resources.
For example, the American Bar Association (www.americanbar.org) provides a SaaS contract template in .doc format. The SaaS Agreement Template is available for download below.
Our list is not exhaustive and agreements and clauses often depend on the type of SaaS contract.
As a general rule, paying particular attention to the following points will help limit risks and costs:
When a contract is particularly complex, legal expertise should be sought to protect against any risk. Lawyers and other legal experts will be able to draft adapted and personalized clauses while keeping in mind the legal considerations in compliance with any related regulations.