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Software as a service (SaaS) refers to cloud-based software which users access through the internet. This business model has grown in popularity as more businesses streamline their processes through online services. Whether you are starting a business and are looking at your infrastructure options or you are just considering a software upgrade, you will need to sign a SaaS agreement. This article sets out six key clauses you should consider implementing into your SaaS agreement, including:

1. Licence and Payment

When entering into a SaaS Agreement, you are commonly paying for two services, being:

  1. the licence to access the software as a service; and
  2. technical support from the service provider, although this may be an optional upgrade.

A key benefit of the SaaS model is its ability to tailor itself to the needs of a business. For example, service providers may charge you for each account you own, allowing you to cut costs and pay for only what you need. If this is the case, you should confirm the number of accounts you are paying for so you are not overcharged unnecessarily.

However, you should remember that your initial payment may not always include technical support. Some service providers only provide technical support at an additional cost and a limited amount. For example, paying the higher fee may only net you 20 hours of technical support per year. Therefore, if your SaaS Agreement is unclear, you should clarify whether support is included and at what additional cost. You should also understand what support will be provided and whether it will be sufficient for your business operations.

2. Client Obligations

It is essential you are aware of your obligations in using the service. Breaching your obligations may amount to a breach of the SaaS agreement, so it is essential to:

  1. be aware of any obligations; and
  2. ensure that they are practical and reasonable.

Some common obligations service providers may request of you throughout a SaaS agreement include:

  • ensuring only authorised users access the service, such as employees;
  • that you grant the service provider access to your business’ hardware and information and communications technology (ICT) systems; and
  • make changes to your hardware and ICT systems to support the delivery of the services.

3. Support and Service Levels

Support and service levels are the promises the service provider make if you require assistance using the software. If your entire operation is reliant on the software, you will want assurance that the service provider will fix any problems promptly.

This clause should be as specific as possible and tailored to your business needs. Consequently, you may choose to include service terms such as:

  • support procedure. Set out what procedure you should follow to obtain assistance. For example, you may call their helpline or lodge a request on their platform;
  • hours of support. The service provider may limit support to traditional business hours. You should consider whether this fits your business’ hours of operation, especially if the SaaS provider is overseas;
  • response time. General references to time like “as soon as reasonably possible” is unlikely to benefit your business. You should clarify this term and set exact measurements of time. For example, 30 minutes upon lodging a request; and
  • compensation. The service provider may outline forms of compensation should they not meet their service levels. The service provider may provide future credit hours of support or discount your future fees. Consequently, you should clarify when the compensation is redeemable, such as immediately or next month.

4. Privacy

You should be aware of your obligations under the Australian Privacy Principles (APPs). The APPs regulate how businesses collect, disclose, hold and use personal information. Generally, the main threshold for whether or not your business must comply with the APPs is if your business has an annual turnover of at least $3 million. However, certain businesses, such as those which sell personal information or are healthcare services, must comply with these principles regardless.

The APPs apply to any SaaS platforms you may use to process personal information. If the APPs apply to your business, you should consider whether the service provider has a privacy clause confirming whether they will comply with the APPs. Importantly, the responsibility falls upon you to ensure the personal information collected for your business is held and used appropriately.

If the APPs apply to your business, you should also be aware of your obligations under the Notifiable Data Breaches (NDB) Scheme. If your business experiences a data breach, you will need to notify the Office of the Australian Information Commissioner and the people whose information was affected. Therefore, you should ensure through your SaaS Agreement that your service provider will inform you of any data breaches.

5. Dispute Resolution

Service providers and clients will want to avoid court disputes whenever possible. An effective dispute resolution clause will provide mandatory steps before any party can initiate court proceedings.

Common steps include entering into negotiations and alternative dispute resolution to resolve the matter promptly and more cheaply. Therefore, you may wish to include a dispute resolution clause in your SaaS agreement, since this may be useful in protecting your business reputation and avoiding expensive court costs.

6. Termination

After entering into a SaaS agreement, the contract will be binding until the contract expires or becomes terminated. Consequently, you should know what circumstances will allow you to terminate your SaaS agreement. In some cases, service providers will provide you with a trial period where you may freely terminate the contract.

However, other providers may only allow for the termination of a SaaS agreement where the contract has been breached. This emphasises the importance of reviewing the SaaS agreement before signing the contract. Additionally, service providers may automatically renew your contract if you do not provide notice of cancelling the agreement. Therefore, if your software delivery is through a subscription, you should know how to exit the contract after the period has finished.

Key Takeaways

There are various legal considerations associated with entering into a SaaS agreement. Consequently, it is vital you understand the exactly what you are receiving and the legal terms attached. In particular, some key clauses you should consider throughout your business dealings with the provider are:

  • licence and payment;
  • support and service levels;
  • client obligations;
  • privacy;
  • dispute resolution; and
  • termination.

If you need assistance drafting or reviewing your SaaS agreement, get in touch with one of LegalVision’s IT lawyers today on 1300 544 755 or fill out the form on this page.


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