What Makes a Great Contract for SaaS, Cloud, and other Software as a Service?

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Key Takeaways

A Software-as-a-Service contract, or SaaS agreement, spells out the contract terms of a software deployment model. Documents and files will be remotely hosted in this paradigm and clients will be able to access the software and data they need via the internet. A SaaS contract may involve significant service components or it may just provide end-users with access to items that can be licensed in a conventional fashion.
Individuals and startups are typically hesitant to employ cloud computing technology because cloud agreements are either confusing or skewed in favor of the cloud service vendors. Current rules and regulations, as well as national contract laws, may not necessarily be applicable to cloud-based solutions. Confidential information protection in a cloud setting must also be properly handled.
For your clients, you could choose to use a simplified SaaS agreement. A simplified agreement would eliminate the need for endless back-and-forth negotiations. Your clients will be able to finalize their contracts faster if you spend less time negotiating. Speedy contract implementations would lead to a shorter sales cycle, allowing your clients to pay you sooner.
Crucial terms and checklists in a good SaaS agreement include the client; term; SaaS solutions; payment terms; maintenance, support, and upgrades, customer data and confidentiality.
Non-exclusive, non-transferable permission to use specific software is granted by a software license agreement (SLA), which is essentially an agreement that specifies how the software application can be used and what will happen if the agreement is violated.
Once contractual details are recorded in a SaaS management platform (or any other record-keeping platform), they provide quite a comprehensive picture of the corresponding cloud-based applications. The result of gaining this perspective is that new software management skills, cost-cutting opportunities, and leverage for greater return on investment can all be made possible.
While all SaaS contracts vary, they will have a few terms and conditions in common. These are users and access rights; data security; scope; accountability; warranty; subscription options and pricing, and termination, renewal, and term.
These contract provisions cover wide-ranging areas from cybersecurity to legal responsibility and allow SaaS businesses to keep complete control of their software while still providing valuable services to their customers.

What is a SaaS Contract?

A Software-as-a-Service contract, or SaaS agreement, spells out the contract terms of a software deployment model. Documents and files will be remotely hosted in this paradigm and clients will be able to access the software and data they need via the internet.

A SaaS contract may involve significant service components or it may just provide end-users with access to items that can be licensed in a conventional fashion. Because data is transferred into a system and subsequently stored in the cloud, the SaaS model requires no new software or hardware.

Cloud Computing Contracts

"Cloud computing" refers to using a computer's processing capabilities and programming capabilities over the internet, or "in the cloud." Clients save money by not having to buy, configure, and maintain hardware and software on their own. They can easily increase or decrease IT capacity based on their business needs. This effectively turns computers into a pay-as-you-use service! Data may also be retrieved and managed from anywhere through the internet -- which is a huge plus.

Cloud computing is more cost-efficient when purchased as a service because it is pay-per-use. It has the ability to reduce user IT costs while also maximizing the utilization/adoption of digital technology across the company. Unfortunately, individuals and startups are typically hesitant to employ cloud computing technology because cloud agreements are either confusing or skewed in favor of the cloud service vendors. Current rules and regulations, as well as national contract laws, may not necessarily be applicable to cloud-based solutions. Confidential information in a cloud setting must also be properly handled and protected.

For your clients, you could choose to use a simpler SaaS agreement. A simplified agreement would eliminate the need for endless back-and-forth negotiations. Your clients will be able to finalize their contracts faster if you spend less time negotiating. Speedy contract implementations would lead to a shorter sales cycle, allowing your clients to pay you sooner.

SaaS Contract Template

You can start with the SaaS contracts examples from Y-Combinator (which is among the most well-known startup incubators in the world).

Although the Y-Combinator SaaS contract is fairly robust, you should be aware of its pitfalls:

It does not include the provision of SaaS solutions being provided, as this would depend on the individual circumstances of this contract's use by a startup. An agreement that does not fairly represent the services delivered cannot accurately describe both parties' intent and, as a result, is more prone to disagreement. This kind of dynamic (characterized by proneness to disagreement) is something that you absolutely do not want in your relationship with your customers.
It is more favorable to the provider (i.e., the startup) and as a result, may cause the contract negotiation to be delayed, the expense of closing deals to increase, and some deals to be lost entirely.

As a result, the Y-Combinator contract generally comes in handy as a preliminary draft. Make sure to tweak it as needed.

What makes a good SaaS contract?

Let's look at some crucial terms and checklists in a good SaaS agreement.

The Client (Other Party)

Is the client:

A person?

What is the full name of this person?
What's the mailing address?

2. A company?

Is the business incorporated in a certain jurisdiction?
What is the CIN (company identification number)?
What is the address of the registered office?

3. Or, perhaps, a business partnership?

What is the official name of the partnership?
Is the partnership based in a specific jurisdiction?
What is the main business location?

Term

Some lawyers prefer to include default settings for the provider in order to avoid situations where a contract has ended but services are still being provided because no one paid attention to the expiration date.

Some clients, however, may object to auto-renewal and request that it be removed. So you can include "Initial Term" and "Renewal Terms" in an auto-renewal clause, which are specified as the "Term."

The following is a term clause checklist:

What is the contract's effective date (i.e., the date on which the contract will go into effect)?
When does the contract end?
Does it come to an end in response to the occurrence of a specific event?
If yes, then what is the event?

SaaS Solutions

What kind of authorization has been issued to use the SaaS services? Resolving this question early on would eliminate any future uncertainty about intellectual property rights disputes involving the software. The license can be global, non-exclusive, or better. However, it's fine if you don't mention the license in cases where you provide the customer with subscriptions instead of a software license for the length of the contract. This is because it is a subscription that is enabling the customer to use the service. As a result, there is not always a need for software licensing.
Is it necessary to use a specific method to access the hosted services (e.g., a web browser or a mobile app)?
Is the service available for general use or for a particular function?
Who can utilize the SaaS services?
Is the license only available to specific users? What is the procedure for changing, adding, or removing a named user? What will happen to named user licenses?
Is there a restriction to the number of simultaneous users (e.g., if two persons share the same named user license, then the number of concurrent users is two, but the number of named licenses is one)? Is this lawful?
What limitations apply to the hosted services' availability? For instance, these restrictions on accessibility could include (but are certainly not restricted to) the following: someone with a sublicense or someone who is an unauthorized person is not permitted to use the SaaS service; the SaaS platform cannot be used to deliver services to third parties; no information can be reprinted or disseminated; no changes can be made to the SaaS platform, load or security testing can’t be performed.

Payment Terms

A SaaS service's pricing may be determined by calculating utilization in terms of the number of user licenses; alternatively, it could be volume-based, or performance-based, and may also include tier-based pricing.

Here's a list of payment arrangements to consider:

Is it possible for the provider to change the payment amount or any part of the payment, at any time?
Which aspects of the payment are subject to change? What should the notice period be for a change in payment amount or terms?
When should you send out invoices?
What is the deadline for making invoice payments?
Is the invoice issued before or after the services are rendered?
What types of payment should be used?
What rate of interest should be charged on late payments?

Maintenance, Support, and Upgrades

In most circumstances, when the provider patches a software bug or upgrades to a new version, the client benefits automatically. This is also contingent on the terms of the contract. For instance, the upgrade option might include new features that the client would have to pay for. As a result, a maintenance or a support services clause in a SaaS contract is necessary.

A SaaS agreement, on the other hand, is a service level agreement (SLA). That means that it should address:

Assured availability of services (e.g., AWS and other cloud service providers often guarantee 99.9% uptime).
Predetermined time frame for fixing defects and problems.
The predetermined time frame for resolving performance concerns, such as those related to speed and latency.

You can still utilize the criteria below if your SaaS model or client asks you to include infrastructure and repair clauses:

For how long will the maintenance/support services be available?
How far in advance should a written notification be given to the client before an update is released?
How far in advance must the provider offer written notice to the client before terminating maintenance/support services?
What kind of warning must the client be given before maintenance/support services are suspended due to non-payment?

Client Data

Clients can tailor a SaaS solution to their specific business processes. For example, a client subscribing to a CRM SaaS platform (perhaps for help with analytics) may personalize data visualizations to match its own business operations or adjust the workflow to manage leads better. In such cases, the client's unique settings and modifications may be business-sensitive. The client may then request that the provider agree to keep such client-driven settings and customizations private.

Confidentiality

Should the provider be obligated to place confidentiality obligations on the receiver of private information if the provider discloses any sensitive information (with the customer's prior written consent)?
Is it necessary for the client to furnish written permission for the provider to share sensitive information with third parties? Is it enough, instead, if such disclosures are made under terms of secrecy that are no less stringent than those outlined in this agreement?
Is the provider expected to operate in good faith when dealing with sensitive data?
Is the provider required to use the given information solely for the stated purpose(s)?
With whom may the provider share the client's sensitive information?
Will the confidentiality obligations last perpetually -- or will they expire after the agreement is terminated?

Software License Agreement (SLA)

Non-exclusive, non-transferable permission to use specific software is granted by a software license agreement (SLA), which is essentially an agreement that specifies how the software application can be used and what will happen if the agreement is violated.

What Makes a Good Contract?

Adopting best practices for SaaS contracts — such as the ability to effectively negotiate, maintain and manage contracts for SaaS applications – can be both a problem and an opportunity for tech founders. The processes underlying the recognition, assessment and analysis of contracts, as well as gleaning important data to empower SaaS management and then recording these details, can be complex and overwhelming for many people.

But here’s the deal:

Once contractual details are recorded in a SaaS management platform (or any other record-keeping platform), they provide quite a comprehensive picture of the corresponding cloud-based applications. The result of gaining this perspective is that new software management skills, cost-cutting opportunities, and leverage for greater return on investment can all be made possible.

The precise industries and services covered by every SaaS agreement will differ from the others. All SaaS contracts, however, will have a few conditions and terms in common. These include, but are not limited to, the following:

Users and access rights: The maximum number of users permitted by the contract and the consequences if the customer exceeds it
Data ownership clauses: Terms and conditions stating who owns the data uploaded to the service
Data security: The encryption, backup and security obligations of both parties. This clause is critical for SaaS businesses that deal with sensitive customer data.
S‌cope: The scope of the license is the set of rights and restrictions that the client receives as a result of agreeing to the contract.
Accountability: The SaaS company's acceptance and denial of liability, as well as a contractual damage cap
Warranty: Performance targets, client service method(s), and minimum guaranteed performance and availability are all covered under warranties. Furthermore, any other results that your service does not promise are also covered under warranties.
Subscription options and pricing: The subscription tier, as well as the payment schedule and amount due from the customer
Termination, renewal, and term: The length of the subscription, the options for canceling, modifying or renewing it, and any penalties for terminating it early.

These provisions cover wide-ranging areas from cybersecurity to legal responsibility. Thus, these conditions allow SaaS businesses to keep complete control of their software while still providing valuable services to their customers.

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