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Many businesses have to use third parties in order to adequately run their business. Some industries more heavily rely on and use third parties than others. IT is an industry where businesses need to use third party inputs to provide or assist with providing their services. This article runs through the:

  • different types of IT contracts
  • and risks associated with third party inputs. 

What Is IT Law? 

IT law is an area of law, which relates to the regulation of the information technology industry. An important part of IT law is IT contracts. These are commercial contracts, tailored for the IT industry, including for the provision of: 

  • software; 
  • applications; 
  • websites; 
  • data servers; and 
  • cloud services. 

IT contracts will include specific IT terms. You may not see these in other commercial agreements, but they are standard to the IT industry. 

Types of IT Contracts 

There are many different types of contracts that can be classified as IT contracts. Examples of IT contracts include: 

Type of Contract
Explanation
Master Services Agreements

An IT master services agreement is a blanket agreement for IT services under which a customer can order and receive a broad range of IT services. 

Managed Services Agreements

An IT managed services agreement is an agreement for the management of a customer’s IT needs. Common services provided by a managed services provider are application management, data backup and recovery, data storage, cloud services, and software support and maintenance.

Software as a Service (SaaS) Agreements

A SaaS agreement is a document that sets out the provision and delivery of software services to customers through the internet. As the software is licensed on a subscription basis and centrally hosted, it is often distributed on-demand in the cloud and accessed by a customer online. Examples of a SaaS include Netflix, HubSpot, MailChimp and Stan. 

Software Development Agreement

A software development agreement is an agreement for the development of software (whether a SaaS or downloadable software such as a mobile app).

Software License Agreement

A software licence agreement is an agreement for software to be downloaded and installed by the customer. Software provided under a software license agreement often has a one-time or annual fee. Your software license agreement should set out how your customers can (and cannot) use your software. 

End User License Agreement (EULA)

A EULA is generally an agreement that applies to an end user of a SaaS or software tool. For example, if your business signs a SaaS agreement to use a payroll SaaS system and then each employee of your business as the end users must accept the EULA when signing up to use the software. 

IT Reseller Agreement

An IT reseller agreement is an agreement for the resale of IT products or services, such as a piece of hardware or a SaaS. For example, a company may develop a popular SaaS and then wish to expand their services and allow a company in another country to resell their SaaS in that territory.

What Are Third Party Inputs? 

A third party input can be any input that you integrate, connect or use to assist with the provision of your software. Third party inputs may include source code, plugins, data or the cloud system your software uses to function. Many businesses have to use third parties to run their business. However, in the IT industry, businesses will almost always need them to provide all or part of their software services. 

An example is a SaaS offering. SaaS is available over the internet from any device, anytime. This applies as long as there is internet and no need to download specific software to a computer to use the software. As SaaS offerings are used online, they need to be hosted on a cloud for customers to use the software. When you use a hosting provider, for example AWS, to host your software, this is an example of a third party input.  If you used code from another person or entity to create the software, that would also be considered a third party input. 

Risks With Third Party Inputs 

An obvious risk associated with third party inputs is that your software/service is relying on an input from a third party to function. Therefore, over this third party you have limited control or oversight. For example, if the AWS Server went down and they were hosting your platform, then your SaaS would also crash. As a result, your customers would not be able to use it. This can provide issues between your business and your customers or clients. Especially, if you have committed to them that they will have a running service with no downtime.

If you are making such promises to your customers, then you also need to ensure that is reflected in your contract with the third party input provider you are engaging. 

As a business, you must ensure clients do not hold you responsible for issues your third party provider or input causes. If as a result of your software having downtime, your customer has suffered some form of loss, you may be liable to pay damages to that customer. It is important to ensure you have adequate protection from this happening. Therefore, as much as you are legally possible, you must limit your contractual liability concerning any third party inputs you provide as part of your services to customers. 

Third Party Input Clause

You should ensure you have a well-drafted ‘third party input’ clause in your IT agreements. The clause should state that your customers agree the provision of the software/services may be contingent on or impacted by a third party input. Additionally, it should state that you will not be liable for any issues caused as a result. 

Key Takeaways 

Your IT contracts are designed to be comprehensive documents that cover you for risks associated with supplying your services. You need to draft your IT contract correctly, especially in relation to your third party inputs clause. Failing to include this clause can have serious legal implications on a business. It can also risk business reputation should a third party input fail. If you are looking for assistance in thoroughly drafting an IT contract or third party input clause, get in touch with LegalVision’s IT lawyers on 1300 544 755 or fill in the form on this page.

Frequently Asked Questions

What is a SaaS agreement?

A SaaS agreement is a document that sets out the provision and delivery of software services to customers through the internet. The software is licensed on a subscription basis and is centrally hosted. Further, it is often distributed on-demand in the cloud and accessed by a customer online.

What is a third party input clause?

It is a clause stating that your customers agree the provision of the software/services may be contingent on or impacted by a third party input. Additionally, it will state that you will not be liable for any issues caused as a result. 

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