SaaS Agreements – SLAs – Business Continuity and Escrow Agents

SaaS customers are increasingly asking for disaster recover provisions to be included within the terms of a SaaS agreement to ensure that they have access to their data and continuity of service if a problem arises at the SaaS supplier’s data centre. The costs of providing disaster recovery used to be prohibitive, due to the requirement of having mirrored servers and transferring data, however there is now a new market opening up with former escrow providers offering a variety of disaster recovery options at affordable prices.

Disaster Recovery

Disaster recovery sets out the processes and procedures to be followed in the event of a SaaS supplier’s software or customer data no longer being available. This is commonly due to a problem at the SaaS supplier’s third party data centre.

The most common problems are usually caused by:

  • physical damage to the data centre; or
  • insolvency of the party operating the data centre.

However, disaster recover does not cover the situation where the SaaS supplier itself becomes insolvent. In these circumstances a SaaS customer will have no right to access its data and backups at the data centre, as it is not a party to the hosting agreement between the data centre and the SaaS supplier.

Escrow

In the past, SaaS customers used escrow agreements to enable a third party – an escrow agent – to hold a copy of a SaaS supplier’s software (the source code) on behalf of the SaaS customer and SaaS supplier. The source code would be released to the SaaS customer if the SaaS supplier became insolvent or unable to continue to provide the SaaS services. This did not however actually ensure business continuity as SaaS customers did not generally have the technical know-how to understand and use the source code. Accordingly escrow agreements are rarely used today.

Alternative to Escrow

Many escrow providers, such as the NCC and Iron Mountain have amended the services they offer to SaaS suppliers and SaaS customers. They have replaced traditional escrow services with service continuity options which on the most basic level permit the escrow agent to step in and take over the SaaS provider’s hosting obligations, if the SaaS provider becomes insolvent or unable to provide the SaaS services. The escrow agent provides the SaaS customer with continuity of the SaaS service by hosting the SaaS software and data either:

  • at an alternative data centre, if there are issues at third party data centre; or
  • at the existing data centre in the event of the insolvency of the SaaS supplier.

For example. A SaaS customer enters into a SaaS agreement with a SaaS supplier who is hosting the SaaS service via AWS (Amazon Web Services). The SaaS supplier becomes insolvent and AWS stops hosting the SaaS services. However, if the SaaS customer had included a service continuity option in the SaaS agreement with the SaaS supplier, the escrow agent would simply have replaced the SaaS supplier in relation to the AWS hosting and the SaaS services would have continued uninterrupted.

Advantages for the SaaS Customer

There is no immediate need for the SaaS customer to obtain copies of the source code, data and find a new hosting provider. The SaaS services will continue to run uninterrupted without any loss of service which is very important if the service is being used for a business critical function. The SaaS customer will have time to transition to a new SaaS supplier and service and will also have the peace of mind that the SaaS service will not be interrupted in the interim.

Advantages for the SaaS Supplier

Providing for this type of service in your SLA offers reassurance to your SaaS customers. By proactively approaching the issues of business continuity you will have a competitive advantage over other SaaS supplier sand it will help you build trust into your customer relationship.

Summary

This is just one of the services offered by such former escrow agents. SaaS suppliers should consider discussing this option with customers in order to deal with their concerns over continuity of service, when signing up new business and/or negotiating a SaaS agreement.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

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