In order to limit your liability for the availability of the SaaS software that you provide to customers under a SaaS agreement you should consider whether or not to offer service credits in your SLA.
Why you should Offer Service Credits
The advantage of providing service credits is that they limit your liability to pay the customer fixed amounts if you fail to provide the SaaS software in accordance with the availability level set out in your SLA.
If you do not include service credits in your SaaS agreement, you could be fully liable to compensate customers for a breach of contract if you fail to provide the SaaS software in accordance with the availability level set out in your SLA.
Additionally, most customers now expect to be offered service credits and if you do not provide for these in your SLA they may come up with their own calculations and payment terms, which will be vastly different from the terms that you would have chosen to offer to them.
Service credits should be linked to the non-availability of the SaaS software. Your SLA should therefore specify the level of availability that customers will have to your SaaS software. You should clearly state how availability is to be measured i.e. monthly, quarterly or yearly. This will usually depend on how your hosting centre measures availability itself. Also remember to list exclusions from the calculation, such as planned maintenance.
Payment of Service Credits
Customers should be obliged to make a claim for service credits in order to receive them, rather than them being paid automatically. There should be a time limit on a customer claiming a service credit which should be linked to the date on which you provide the service availability report to them.
Usually service credits are not “refunds” and are given as credits against future payments. You will therefore need to include provisions on how to deal with service credits if a customer terminates their SaaS agreement.
All matters which could affect the availability of the SaaS software which are beyond your control should be listed as exclusions in the SLA. Payment of any service credits will not apply if any of the exclusions are applicable e.g. force majeure.
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:
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