A Guide to: SaaS Contracts

At Primas Law, our commercial lawyers are experts in handling a range of commercial contracts to help you navigate through your business’ demands.

In our “A Guide to” series we take a look at some of these agreements and how they can be used in the business world.

Here, we look at Software as a Service (SaaS) agreements, which, in an increasingly digital-first world are an essential tool for software providers and users alike.

Synonymous with cloud hosting, SaaS provision is replacing the traditional marketplace of locally hosted and maintained software licences and providing a greater range of functionality for business users.  Increasingly, we are seeing clients place more emphasis on SaaS platforms within their business infrastructure: whereas previously a SaaS product may have been a discrete solution to a specific problem, we are now seeing SaaS products used to deliver entire enterprise solutions.

Our work:

At Primas we work with both providers of SaaS products and business end users.

Our experience means we can help suppliers design and implement a market-acceptable agreement that protects the Supplier as far as is reasonably practicable, without creating an overly onerous agreement that will only prevent business being concluded.

For customers of SaaS products, we help identify the inherent risks, provide guidance on appropriate service levels and look at the level of dependency our client is placing in the software.

What is SaaS?

But for those new to the terminology, lets take a look at the basics…

SaaS or Software as a Service, is an internet-based software delivery service.  Rather than purchasing a licence to locally host software on your own infrastructure, SaaS products allow users to access a large range of software services via the internet.  Delivered on a one-to-many basis, typical SaaS products offer an out-of-the-box solution for a multitude of operational needs.

Why use a SaaS product?

For customers of SaaS products, there are major cost savings to be achieved. Rather than having to pay for their own hosting infrastructure end users can rely on the economies of scale offered by SaaS vendors who can utilise multi-tenanted hosting architecture (essentially hosting infrastructure supporting more than one end user).

For SaaS providers, it means they only need to support one version of their software.  They can continue to make rolling enhancements and upgrades to the software, without having to worry about pushing updates out to their customer’s premises.

SaaS products also tend to be easier for customers to use within their business. With no need for local hosting, customers don’t need to invest heavily in hardware, software or the in-house support teams needed to implement at a local level.

What to expect with SaaS agreements

Typically presented by suppliers as a set of non-negotiable terms to their customers, the primary objective of a set of SaaS terms (like most supplier terms) is to protect the supplier of services as far as possible.

However, the intrinsic corporate value to a SaaS supplier is having large numbers of end users paying monthly recurring subscription fees.  Therefore agreements weighted heavily in favour of the supplier over the customer, may either put prospective customers off, or unnecessarily delay the signing of agreements.

That being said, SaaS providers will want to:

• Set out clearly the responsibilities of their customers;
• Limit their own contractual obligations and their liability for a failure to perform; and
• Set out the extent of their services and what they are providing.

SaaS Customers in turn will want to check:

• The service levels provided by the supplier and whether there are mechanisms in place to deal with below par performance (Service credits etc…);
• How the provider deals with price increases;
• How the provider deals with business continuity or disaster recovery;
• Exit management; and
• How the provider deals with the return of data.

It doesn’t end with the agreement

Whether there is scope to negotiate the terms or not, end users of SaaS products should also think about:

• The financial stability of the supplier and their track record in providing similar services;
• The supplier’s own disaster recovery process and hosting redundancies;
• How dependent they will be on the supplier to deliver their own core service, and the impact in each case of small, moderate or major service downtimes;
• How easy or difficult will it be to pivot to a new supplier, and whether the contractual timescales for provide sufficient lead in time; and
• Regulatory considerations, from data protection, privacy and security through to sector specific obligations. Will the software enable you to comply with your own requirement?

SaaS contract FAQs

What is the difference between a SaaS contract and a set of Terms & Conditions?

In some instances there may be no difference at all.  T&Cs are after all the contractual terms between two parties.  Where a business is engaging with a SaaS provider for an enterprise solution, or an application for use by all its employees, the parties are likely to want to enter into a negotiated SaaS agreement.  Where individuals are signing up directly to the SaaS platform, the terms are more likely to be presented as a standard set of terms and conditions to be accepted or rejected as a whole.

Is a Licensing Agreement different from a SaaS contract?

A SaaS contract is a form of software licensing.  In the software world however, software licensing traditionally referred to the local hosting of software under an application service provider model.

How often should you review a SaaS contract?

The key provision here is that all agreements should be treated like living documents that should reflect both the changing nature of your business and the regulatory environment in which it operates.  Outside of product or regulatory changes, scheduling regular 12/18 month business reviews should be part of your standard business cycle.

Do I need a SaaS contract?

If you’re a provider of SaaS products then put simply, yes.  This could take the shape of a B2B SaaS agreement or a set of terms ready for acceptance by the end users of your product.

If you need support or guidance with your SaaS agreement, our expert legal team can help. Contact Rory O’Hare directly via rory.ohare@primaslaw.co.uk.