Thrashing out the details when negotiating SaaS contracts can elicit a range of emotions. Members of Crafty Counsel's High Growth community group recently spoke about this topic. They shared the initial responses when tackling the process, questions that arise when negotiating contract terms and some handy tips.
A special thanks to the following for their collaboration on this:
- Xavier Langlois, General Counsel of Beamery
- Harj Gill, Group General Counsel at LiiV
- Max Garth, Senior Counsel,Director Legal EMEA,at Databricks
Tips if you are the providerin SaaS contract negotiations
If you're theproviderit is important to know thebuyer wants to assume little to no risk at all. They want you to put the cap on your liability somewhere near the moon. And while you are at it, will you please use their paper?
[Related content: SaaS Deconstructed: Part 1]
Leverage your brand
Work on and leverage your brand name: the better you are known, the easier the negotiation maybe.
Provide the context before negotiations
Before diving into contractual negotiations, take the time to explain your product. Whether through a legal kick-off call or by putting together a two-pager. In this explanation, share the data you process and risk profile. Including all the work you do to mitigate risks, such as ISO certifications or the like.
Make sure ALL relevant people on the buy-side have been included in these explanations – legal, procurement, ops. Has anyone been left out and dumped with a context-free contract to review?
Often high caps are reflective of fear, discomfort, or a general assumption that "anything to do with the cloud is risky". Demonstrate the privacy and security by design at an IT infrastructure architecture level. This will also appeal to the information, security, and technical personnel on the buyer's side.
"Use our paper" for SaaS contract negotiations
Often "use our paper" arguments are about not understanding your product in the first place. Explain that using customer paper may not reflect the nature and the risks of the services that you provide. As a result, time and effort will be expended turning their paper into a "Frankenstein's monster". A paper that nobody can love. Another tactic is to base your pricing quote on use of the provider's contract.
[Related content: SaaS Deconstructed: Part 2]
Balancing the value
Remind your buyer of the value of the contract. Is their request proportionate? Super caps for breach of Privacy/Security tend to be at the 3-5 x the value of the contract. Explaining the actual risk exposure (see above point) should help to bring down the value of the cap discussions.
Explain to the buyer that everything has a price: the higher the cap, the higher the price. Get your sales team on side with this tactic. Ultimately, if your client is willing to pay for that risk then they are probably serious about it.
Get an insurance quote and explain how the price will be impacted if you have to buy that to cover the risk the buyer is asking you to take. If they are willing to pay, consider whether you could be charging more for your product! Your sales team may be interested in this insight.
Managing the power plays and people
Try to dilute possible power games or personality clashes. Enlist the help of non-lawyer colleagues by asking a senior colleague to explain to the buyer why your position is what it is, from a commercial or technical architecture point of view, before you even get involved. You'll need to train your colleagues on that first. Make this a joint responsibility with them – sales enablement within your organisation is key.
Don't believe "All of our vendors have agreed to this". They probably haven't. Use your networks to find out if those vendors do in fact "agree to this", and call the buyer's bluff. Similarly, ask your client if they would take on that risk or liability if the roles were reversed. The answer is always no!
Would it be useful to have a lawyer?
Sometimes during negotiations the buyer won't bring in their lawyer, but you think a lawyer would be useful. Be aware your buyer may be battling with incentive structures that would punish them from bringing in legal (e.g. internal chargebacks for services). It is worth, gently and empathetically, finding out the pressures they are under? If the contract is worth enough to your business, offer to pay or contribute to internal cross charges they might have of bringing on a lawyer.
[Related content: The Cloud – How To Get Your Legal Head Out Of It]
Tips if you are the buyer in SaaS contract negotiations
If you are thebuyer, remember the provider wants to stick at a really low cap on their liability.
- Is limitation on liability a side show to the operational risk. In reality does the provider have their ship in order (security systems etc)?
- Is it worth squeezing out a high cap from the provider? Could they actually pay out if you had to rely on the contract?
- The more you are buying, the more demanding you can be... if it's worth it.
- Is there anything unique about your purchase or use of the service that might shift the cap up a little? Although, this is unlikely for a multi-tenanted SaaS solution.
To the provider-side colleagues... our community warmly recommends preparing a fancy, nicely designed information security pack with which to dazzle and delight your buyers. It is so much easier to press "send" than to spend several days answering those 300+ infosec questionnaires. It's a giddy moment when your brand is strong enough to stand by its security pack, instead of bending backwards to each questionnaire.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
