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South Africa: What-as-a-Service?  Tips for contracting for a SaaS solution

28 September 2023
– 4 Minute Read

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Overview

  • ‘Software-as-a-service’(SaaS) software that is made available and accessed online.
  • When contracting for a SaaS solution as a customer, it is important to consider the correct form of agreement to use.
  • In these circumstances a specialised form of a services agreement, and not a licence agreement, is appropriate. Traditional licence provisions are not always relevant in the SaaS context and do not properly address the key risks.
  • This article provides 10 tips for those procuring a SaaS solution.

When contracting with IT suppliers for your business, you may have come across the term ‘software-as-a-service’ (SaaS). If you find yourself thinking ‘What-as-a-service?’, this short article will provide you with a brief description and some contracting tips for procuring a SaaS solution.

SaaS is software that is made available and accessed online. SaaS differs from traditional on-premise software in various ways including:

  • The software is typically not installed on the customer’s hardware or at the customer’s premises.
  • The supplier typically hosts both the software and the data stored and processed within the software.
  • The provision of SaaS is treated as a service arrangement, not as a traditional software licence.
  • SaaS software is typically made available to multiple customers, therefore the offering and the associated services (e.g. hosting, maintenance and support) are often standardised, and customisation is less common (although the software will most likely allow for some level of configuration).

Considerations

When contracting for a SaaS solution as a customer, important considerations include:

  • Form of agreement. The correct form of agreement is a specialised form of a services agreement, not a licence agreement. Traditional licence provisions are not always relevant in the SaaS context and do not properly address the key risks. However, the services agreement needs to include appropriate rights to access and use the SaaS offering.
  • Pricing. The use of SaaS is often treated as a subscription, and the customer pays regular subscription fees (e.g. monthly in advance). This differs from the traditional software licence model where the customer typically pays a once-off licence fee and then regular maintenance fees. However, the pricing and payment structure will depend ultimately on the commercial agreement between the parties.
  • Bundled services. Maintenance, support and hosting services should be included as part of the bundle of services provided by the supplier and, ideally, there should not be a separate fee for these services. However, you should confirm this with each supplier, as not all SaaS suppliers follow this model.
  • Meeting expectations. What are you expecting the SaaS software to do/achieve? This should be recorded clearly in the agreement and the supplier should warrant that the platform does, and will continue to, function as expected.
  • Uptime/availability. Minimum uptime and availability standards should be included in the agreement, and the customer should receive agreed service credits if these standards are not achieved.
  • Data protection and security is key! Because the supplier hosts the customer’s data, it is very important for the customer to ensure compliance by the supplier with the customer’s information security, cybersecurity and data protection requirements, and with all laws relating to same. You should also check if the data will be hosted in South Africa or offshore because there may be restrictions on the offshoring of data (particularly depending on the applicable industry).
  • Liability. The limitations of liability should be carefully analysed, as certain limitations that are routinely accepted in agreements are not appropriate in SaaS agreements. For example, the supplier’s liability for loss or corruption of data should not be limited or excluded.
  • Business continuity and disaster recovery. The supplier must have clear obligations relating to business continuity and disaster recovery.
  • Exit management. Appropriate exit management provisions should be included in the event of the expiry or termination of the agreement. The supplier should also have an obligation to protect the customer’s data and transfer same to the customer or a replacement supplier.
  • Intellectual property. It is unusual for the customer to own any intellectual property in these types of arrangements. Therefore, the supplier (or its licensor) will own the intellectual property. As such, the supplier should carry the risk if the SaaS infringes any third-party intellectual property rights (e.g. through inclusion of an appropriate indemnity).

These considerations will assist you when contracting for SaaS as a customer, however, the list is not exhaustive.