Poland: Top 5 Business and Legal Considerations for SaaS (Software as Services) Buyers

 

 

SaaS contracts are growing in popularity, as are the cloud services they affect. I recently read that the software-as-a-service (SaaS) market is estimated to be worth around $145.5 billion and growing. Businesses are relying on cloud services more than ever, which means you need to have a good understanding of the terms of use.

However, SaaS contracts are also one of the most complex types of contracts, as they involve different types of risks, both from a legal and business point of view.

„Unfortunately, I missed the terms of my SaaS contract renewal,“ I heard recently. This makes it difficult to end the contract and change the supplier. When buyers mention overlooking the terms of termination and renewal of a SaaS contract, they usually mean that they haven’t paid enough attention to the clauses that specify how the contract can be terminated and what happens at the end of the initial term or after renewal. These are the most common two clauses: Automatic Renewal Clause and Termination Clause.

It’s important that buyers carefully review and understand these clauses to ensure they have the flexibility and control they need throughout the life of the contract.

Customers should evaluate the risk of egress and data portability before deciding on a cloud provider to mitigate the dangers of vendor lock-in.

So what are the most important legal issues worth paying attention to in SaaS contracts?

1. Data security

This is one of the most important aspects that is worth looking at in this type of contracts: from the point of view of data flow, data processing, but also from the side of using it for statistical purposes (big data). In addition to the standard GDPR clauses, it is worth considering adding a due diligence clause.

2. SLAs (Service Level Agreement)

SLAs define the standard level of service provided by the SaaS provider. They typically include availability, bug fix time, and maintenance windows. Suppliers often do not provide for penalties for failure to meet service level parameters, and few provide discounts in subsequent settlement periods. It is worth looking at these provisions, especially if the system that the SaaS buyer intends to use will be a key system for the organization. It is worth considering a termination clause after a certain period of non-compliance with SLA parameters if the software performs poorly (i.e. is not available), causing frustration and losses and disrupting its operations.

3. The right to terminate the contract

The right to terminate the contract is valid in every contract. Often, a SaaS contract is a fixed-term contract, with automatic renewal, and only includes the right to terminate it at the end of the term and in the event of a material breach. The SaaS buyer should make sure that it properly understands its termination rights and monitor various factors, e.g. consider a buyout clause or renegotiate the possibility of exiting the contract early.

4. Automatic renewal of services

As indicated in the introduction, sometimes the provisions concerning automatic renewal escape the attention of the contractor. Lack of objection is often associated with the extension of the contract for subsequent periods, which also gives rise to the obligation to pay. Clauses of this type are quite common in SaaS contracts and it is worth considering either their renegotiation (removal, shortening or extension of the period or another mechanism).

5. Service suspension

In SaaS contracts, it is often stated that in the event of a delay in payment, the seller has the right to suspend the service without notice. Service suspension can be a major problem, especially if the SaaS solution is critical to the customer’s business operations or their end customer. An alternative to suspending the service without notice may be to change the right to suspension to a right that is vested only after the seller notifies the seller of non-payment and sets an additional payment deadline for the buyer.

Although each SaaS contract will be specific to a specific supplier and SaaS buyer, the indicated legal and business issues should be taken into account in most situations by SaaS buyers. A few other provisions that deserve additional attention are: payment terms (subscription fees and others), onboarding services, and customer support.

 

For further information, contact:

Renata Warchoł-Lewicka, Partner

Gorazda, Świstuń, Wątroba i Partnerzy adwokaci i radcowie prawni, Kraków

e: renata.lewicka@gsw.com.pl

t: +48 12 4224459

 

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