Software as a Service, or SaaS, is a common model where third-party providers deliver software to customers. Rather than purchasing and installing their own software, customers may choose to pay a recurring subscription fee to access software hosted and maintained by the provider.
A SaaS agreement is a contract between the provider and its customer which sets out the commercial and legal terms on which the customer can access the software. A well-drafted SaaS agreement can help establish what the customer is paying for, how they can use the software and what happens if something goes wrong.
As each customer will have different needs, the terms of a SaaS agreement may vary depending on the client, the nature of the services being provided, and the scope of work required. However, most SaaS agreements will contain a number of core provisions and fundamental elements. This article outlines some of the key terms and considerations that should be included in a SaaS agreement.
What should a SaaS agreement include?
- Services and access: Clearly describe the software being provided, any implementation or support services, the number of permitted users and any limitations on access.
- Fees and subscriptions: Explain the pricing structure, including monthly or annual subscription fees, per-user charges, implementation costs, payment dates, renewals and any process for changing the fees.
- Term and termination: Set out the commencement date, how long the subscription lasts, whether it renews automatically and when either party may terminate. The agreement should also explain what happens to outstanding fees, customer accounts and data after termination.
- Intellectual property: Clarification that the provider retains ownership of the software and related intellectual property. The agreement should grant a licence to the customer to use the software during their subscription.
- Confidentiality: Define what information is confidential, how each party may use and disclose it, and the measures required to protect it. The agreement should also specify any permitted disclosures, exclusions and how long the confidentiality obligations continue after termination.
- Customer data, privacy and security: Set out who owns customer data, how the provider may use it, and what security measures the provider must maintain. The agreement should also address data retention, deletion or return of data when the agreement ends, and each party’s privacy obligations. This is particularly important where the provider stores or processes personal information, as the parties will need to consider their obligations under the Privacy Act 2020.
- Limitation of Liability, warranties and obligations: Set out each party’s key obligations, including the provider’s responsibilities for delivering the service and the customer’s responsibilities for authorised use of the software. The agreement should also address any warranties, exclusions and limits on liability, including responsibility for unauthorised access, misuse or losses connected with the software.
What about Terms of Use for individual users?
A SaaS agreement and Terms of Use can perform different functions.
For example, a company may enter into the SaaS agreement and purchase 50 licences for its employees. Those individual employees are not usually parties to the commercial subscription agreement, but a provider may still need rules governing how the employees use the software.
Terms of Use can apply to each authorised user and address matters such as account security, acceptable use, prohibited activities, passwords, confidentiality, uploading content and misuse of the software. The Terms of Use are usually presented to the individual for acceptance prior to their first access of the software.
A SaaS agreement can require the customer to ensure its employees and other authorised users comply with those Terms of Use.
Getting this structure right can help protect a provider’s software, clarify customer expectations and make it easier for a provider to manage its SaaS relationships as its business grows.
If you have any questions about SaaS agreements, please do not hesitate to get in touch.
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