Software as a service (SAAS) contracts are different than regular ordinary service agreements or license agreements. To put it simply, software license agreements allow the buyers to copy the software on their devices whereas SAAS contracts allow the users to access the software via a web browser and benefit from it as a service during the subscription period. In other words, buyers of the service do not receive a copy of the software but a usage right for the same, in consideration of a subscription fee.
SAAS contracts are usually one-sided contracts in favour of SAAS suppliers. SAAS customers read and approve the contract in the electronic environment, with not much room to negotiate. This is especially the case for globally recognized SAAS suppliers. However, this may not always be the case for small-sized suppliers. Their potential corporate customers may demand to negotiate and revise the standard contract.
While negotiating a SAAS contract, one thing to bear in mind is that if corporate customers expect to get what they can usually get from an ordinary service provider, they may be disappointed in most of the cases. Let’s not forget about the nature of service as a software, the factors which are not under SAAS supplier’s control and relatively low subscription fees. Taking into consideration such points will be a timesaver for both parties. If you would like to learn more about tips on SAAS contracts, continue to read below.
SAAS suppliers provide the same service to their numerous customers. They do not adapt their services to the specific needs or requests of their customers. Hence SAAS contracts cannot be exclusive to one customer. Such a mistake prevents the SAAS supplier from selling the service to other customers.
As mentioned in the introduction, customers do not receive a copy of the software but receive a usage right under SAAS contracts. As expected, there are rules that SAAS customers must comply with. SAAS suppliers should be entitled to suspend or cancel customers’ usage right in case they do not comply with such rules.
SAAS contracts operate like subscription when it comes to pricing and payment method. Subscription periods can be variable, as monthly, quarterly or yearly. Subscription fees can increase or decrease depending on parameters as the scope of the usage right or numbers of users that the customer will have. It is also common to have free trial periods.
Warranties of SAAS suppliers
This is one of the conflicting issues that the parties to a SAAS contract can face. SAAS suppliers are usually reluctant to give any warranty regarding certain issues. To give some example:
SAAS services are not tailored for the specific requirements of individual customers. These services are provided as is. Customers should decide whether or not such service will be beneficial to their needs and/or business. Therefore, SAAS suppliers should not give any warranty that the service or software will satisfy the customer’s needs.
Another example is the uninterrupted availability of the service. SAAS services depend on the telecommunication infrastructure and internet connection. SAAS suppliers are usually not willing to give any guarantee which are not under their control. For sectors where the interruption of the service can cause material losses, they can agree on a minimum availability period but other than those exceptional cases, it is very unlikely to get a guarantee for uninterrupted availability of the service.
Limitations of Liability
A limitation of liability clause protects SAAS suppliers against events which are beyond their control such as system crashes, power outage but also against their customers’ expectations that the suppliers do not guarantee to meet. A limitation of liability clause may prohibit certain categories of claims or almost any claims for damages. However, it is not always easy to convince corporate customers that they cannot seek any damages. In such cases, the solution may be to place a cap on liability, which usually varies from subscription fee for 3 months to one year that the customer has paid to the supplier. It is obvious that a small sized SAAS supplier cannot afford to take the risk to pay high amounts, which would end the business.
SAAS customer’s data in relation to the service is stored in supplier’s server. Depending on the scope of the service, these data can be confidential; therefor data protection is one of the most crucial obligations of SAAS suppliers. Suppliers must comply with the applicable data protection laws, take all the necessary precautions, have their data protection policy and procedures in place and inform their customers.