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How to Negotiate a SaaS Contract

You did it!  You have finally selected a software-as-a-service (SaaS) vendor and now it’s time to negotiate the terms of the contract.  A software contract is an agreement that summarizes the guidelines for software vendors, code developers, and the end user outlining terms and conditions governing use, payment terms, and intellectual property rights.  It is essential to understand what is stated in your contract before signing.  The legal agreement between the vendor and the client sets the tone of the relationship and expectations for vendor performance.  The bottom line is – if it’s not in the contract, it will not happen.  Poorly negotiated contracts can lead to misaligned features and functionality, decreased productivity, operational inefficiencies, security breaches, budget overruns, and more maladies.  Typically, software vendor contractual documents include a Master Service Agreement (MSA), Professional Services Agreement, Support Services, and a Statement of Work (SOW).  The MSA outlines the working relationship with the software vendor.  The SOW outlines specific project milestones and costs.  Key things to look for when negotiating:

1. Don’t overpay
2. Renewal term price protections
3. Flexibility

Enter the negotiation knowing that everything is negotiable.  Effective negotiations can be beneficial in the following ways:

What are the standard clauses of a SaaS contract?

1. Scope: Defines the boundaries and constraints of the services including functional requirements.
2. Service Access: Specifies the number of users whereas access will be granted to users based on the subscription plan.
3. Data Ownership: States who own the files and data uploaded to the application.
4. Data Privacy and Security: Details vendor security responsibilities, backup, and liability.
5. Renewal and Termination: Defines contract duration, renewal policy, adjustments, and cancelation process and penalty, if any.
6. Service Level Agreement (SLA): Provides performance requirements and service availability.
7. Limitation of Liability: Vendor protection against legal threats from specific harm or loss.
8. Indemnification: Holds vendor liable for data theft or security breaches.
9. Subscription Pricing: Subscription plan pricing and payment terms.
10. Customer Support: Describes how the vendor will deliver support for services.

To avoid misunderstandings and ambiguities, the contract should specifically state that all your identified functional requirements will be met under the agreement.  Be clear on what the vendor will provide for data backup and security.  If the price for a renewal term is not stated in the agreement, theoretically the vendor could increase the price or attach additional fees that may be unattractive to the client.

Some key red flags to be aware of consist of the following:

Negotiating with your software vendor can be a complex task.  When preparing for negotiation, understand your needs to start the negotiation process.  It’s important to be sure there are not too many limiting conditions.  You need to have the ability to get out of the agreement before the expiration of the term. Feel free to hire a consultant with extensive experience who knows each vendor’s contractual nuances, sales processes, and negotiation strategies.  St. Onge consultants are dedicated to securing optimal contract terms and pricing that best suits our clients.
 
—Ashley Rhodes, St. Onge Company
 
 

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