Introduction

Not all SaaS contracts are equal. To me this goes without saying, but I am repeatedly surprised how often legal considerations are overlooked especially when involving the purchase of life-saving technology.  When you purchase access to a SaaS (Software as a Service) platform, you should be familiar with the contract terms and conditions and should know what to expect from your SaaS supplier.  You should make the contract terms and conditions a major part of your supplier assessment and choice. The better suppliers will have fair and equitable terms and conditions.  Furthermore, better suppliers will have clear, easy to read contracts with obligations and benefits for both parties. In this article, I share the 7 key contract terms (and tells) you should consider in your SaaS supplier contracts and some questions you ought to ask your supplier before you purchase their SaaS service. 

1. Uncapped Indemnification for IP Infringement

Always look for uncapped indemnification for intellectual property infringement.  You need your supplier to stand behind their software and to protect you from any third party claims that the software infringes a third party intellectual property right.  Make sure the indemnification is an exception to the limit of liability cap so you have true uncapped coverage.  Many SaaS suppliers do not offer IP indemnification, this can be a telltale sign that your supplier is either not aware of the risks involved, or will not stand by its commitments when you need it.

2. No Conformance Warranty

Always look for a warranty that the product will operate as described in the product documentation. This is essential for you to know exactly what you are purchasing from your supplier and to have the confidence that your supplier will deliver the product features and functionality you expect. Without this guarantee, you risk a bait-and-switch where what you receive is not what you think you purchased.  Also, make sure you review the remedies for breach of warranty. If your supplier breaches the warranty, they should promise to repair or replace the product until it meets the product documentation and if they cannot provide a repair or replacement, they should refund the portion of the purchase price which remains unused.  Many SaaS suppliers will not provide any refund as part of their product warranty remedy–this should not be accepted by you.

3. Right to Terminate if the Service makes Material Changes

Look for the right to terminate the service and receive a pro-rata refund of prepaid fees if the supplier makes material changes to the service during the term of your contract which affect your ability to use the service. Many SaaS providers will never allow you to terminate the service during your subscription term but if they make material changes, you should have the ability to receive a refund of your unused prepaid fees and terminate the agreement. This ability will protect you from the pace of software improvements.

4. Ambiguous Ownership of Data

Ownership of your data is another area worth scrutinizing. In general you should make sure you retain ownership of the data you process or create on the SaaS platform and that the supplier can only access your data to provide the service to you. The contract will probably require you to share anonymized usage data to help the supplier ensure the platform is working properly and to help them make the platform better.  If the supplier asks for this make sure you are sharing only anonymized and de-identified data.

5. Nonexistent or Asymmetric Liability Cap

Expect to see a cap on liability when dealing with reputable suppliers. A good supplier will apply that cap to both parties, not just for themselves.  But the cap should exclude things like willful misconduct or fraud, breach of confidentiality and indemnification obligations. It should also exclude claims that cannot be waived by law- this will cover things like death or disability.  Do not accept a liability cap that only protects the supplier. 

6. Feeble SLA and Support Terms

Review the SLAs (Service Level Agreements) carefully.  You want to be sure the supplier makes the service available at specified uptime levels – such as 99.99% uptime usage of the service (in the industry this is called “four nines” uptime) – you should expect the core part of the product has the uptime guarantees you require to do your work and that matches your risk levels with your stakeholders.  Also review the support terms and conditions to ensure the supplier provides you with the support you need—for example,  24/7/365 remote support is common for SaaS products.

7. Scattershot Security

Understand that when you purchase a SaaS product, it will come with standard security protocols for the entire platform. Most likely the supplier will not be able to agree to your specific security standards.  This doesn’t mean you should ignore security or assume they supply top of the line security on the platform.  Make sure you ask the right security questions and require your supplier to be ISO and SOC 2 Type 2 compliant or meet any other security requirements for your industry. 

Conclusion

In my nearly three decades of experience, I have been on both ends of the table drafting and reviewing contracts. If there is one important lesson I have learned, it is this – your contract is your last line of defense in a worst case scenario. Invest the time upfront to review these key terms in your supplier contracts upfront to save you headaches down the road. After all, choosing a SaaS supplier is stressful enough, and the least your supplier can do is stand by their commitments during your hour of need.