SaaS Agreements 101: Service, Warranties, and SLAs (Part 3 of 6)
By Joanne Hue, published: 2023-03-18
A SaaS agreement is a legally binding contract between a company that provides software as a service and its client. These services mostly concern cloud-based applications that a client may subscribe to. After the subscription, the client can access these internet-based services in exchange for a recurring fee. The content of the SaaS agreement varies vastly based on the parties entering the contract. A well-drafted SaaS agreement clarifies the terms and conditions for the service alongside the rights and responsibilities of the parties.
The SaaS agreement covers a large scope of issues; it postulates the most probable scenarios that may occur in a software service transaction. SaaS service is a cloud-based service through which the subscriber can access the software and bear the licence for its usage. The subscribers have certain limitations and restrictions that are outlined in the agreement. Both parties hold obligations to maintain data privacy. For providers confidentiality and data security concerns the information collected by the subscriber in the system. Likewise, for subscribers data security concerns restriction of unauthorized access or usage of source code.If you’re looking for templates to draft an efficient SaaS agreement, you create SaaS agreements through Zegal’s templates.
The Nature and scope of SaaS Agreements
The SaaS agreement manages the customer’s rights to access the services and puts limitations on those rights. The contract is a “must-have” for any company that facilitates its software services to clients. It clarifies the terms and conditions of the transaction. A SaaS agreement has a variety of functions. They cover the following scopes in a saas agreement:
- Access rights and users: An agreement defines the usage of the provider’s cloud services. This section of the agreement requires clarification on the individual who holds access to the software and the limitations to their access. Generally, it also outlines the penalties in correlation to unauthorized access.
- Data Ownership: Data ownership is one of the most controversial issues concerning SaaS agreements. Businesses that are dependent on the provider’s cloud services generate a large amount of data from individuals who visit them. The data ownership clause makes the arrangement for the proprietorship over the collected data.
- License agreement: A subscriber is given a licence to access the software services. The licence agreement clause clarifies the exact details concerning the limitations and rights of the client. It also includes the provision for contingent termination of or suspension of service in the event of a breach.
- The payment Terms: Clause clarifying the payment terms is imperative to every SaaS agreement. These include the details concerning the subscription type, cost of the service, discount prices and the date for payment.
- Termination and renewal: The termination clause outline the conditions under which either party can terminate the SaaS agreement and a renewal clause for continuing the contract. Note that renewals are usually automatic unless either party gives notice of termination. However, some contracts may include a provision for renegotiation of terms at the time of renewal.
- Performance objectives: The SaaS agreement also provides information regarding service guarantees given y the provider. This lets the subscriber know what they may expect from the provider. The performance objectives clause concerns the reliability of the vendor’s services.
- Confidentiality and intellectual property rights provisions: This clause prevents unauthorized usage and disclosure of the software or its features. Confidentiality provisions essentially protect the software from being copied.
- Cancellation policy: When a party decides to terminate the agreement, they may do so via cancellation policy or termination clauses. The policy clarifies the fees, conditions, and refund provisions for termination. It also sets the minimum time to provide a notice for contract cancellation.
- Limitation of Liability: The limitation of Liability provision restrains the amount of damage recovery a party may acquire from the other party in the event of an infraction.
Warranties in a SaaS agreement
Generally, the Software service vendor provides guarantees for their service. These warranties may cover specific areas like the warranty of no infringement or no viruses. It may also concern the warranty of performance. These warranties are unique to the agreement and the nature of the agreement between the parties.
The customer usually has the option to test the service prior to purchasing it. If the service is inadequate or under par, the customer may terminate the contract and acquire refunds according to their agreement. However, some SaaS services do not allow pre-testing. Warranties are more crucial in such arrangements.
When the client is expected to make payments for the implementation they would want an implementation refund alongside a pro-rata refund. Likewise, a subscriber may also want a warranty to ensure the provider’s commitment to the service. Therefore, including warranties in the SaaS agreement incentivizes the customer to purchase the provider’s services.
In addition to providing customer incentives, warranty clauses ensure that the vendors update their services in compliance with new legal amendments. As the service provider is the primary operator and regulator of the cloud service, they seek to exclude or limit third-party products to avoid intellectual property indemnification. Since the provider holds primary liabilities for infringements, warranties are also instrumental in avoiding legal suits.
In the SaaS trade, SLA or Service Level Agreement can either be an independent document or a part of the SaaS vendor contract. An SLA is a contract between the service provider and the customer. An SLA outlines accountability for the performance of the agreement.
Typically, SLAs include information concerning the specifics of the service to be provided, a way of measuring the quality of those services, a guarantee of software uptime, compliance, penalties to be levied, software maintenance provisions, billing structures, and provisions for security.
SaaS agreement is the contractual outline for expectations levied on the SaaS vendor and their clients. The scope of the saas agreement covers matters concerning subscription or payment terms, termination and renewal provisions, performance objectives, limitation in liability, confidentiality, intellectual rights provisions, access to rights of users, and warranties. Warranties are provided by the SaaS vendor in special areas within the software service. A SaaS agreement needs to be customized to the unique requirements of the parties. Both parties are required to comply with the terms and conditions laid out in the agreement. A well-drafted SaaS agreement is a foundation for an efficient transaction of software services.