SaaS companies provide a service that is often hosted by a third party provider and use tools that rely on third parties to provide you with a consistent and valuable product.
All of these dependencies result in a need for a clear understanding of what a SaaS company is responsible for and the legal protections in doing so. SaaS Service Level Agreements (SLAs) are the mechanism SaaS companies use to communicate expectations to their users and are important to understand as for both the SaaS company and the purchaser of the SaaS product.
What is SaaS SLA?
A SaaS SLA is sort of an insurance policy for a SaaS company should there be an issue with the service. It is a legal document that sets responsibilities and contemplates major legal events like interruption of service and termination of service.
Typical topics covered in a SLA
A SLA contemplates many practical topics like what happens when the service goes down and under what circumstances would a customer receive a refund. Other topics relate to security and if data is still available after service is terminated. These are critical to ensuring both parties are clear on what they are getting out of the service arrangement and, depending on the SaaS company, provide an opportunity to negotiate the terms.
1. The meaning of downtime
Downtime is an important term that SLAs define. Often there is a percentage used to indicate the guaranteed uptime. This can be confusing and using an uptime calculator can help quantify that number into days, hours, and minutes. Depending on your needs, you can press for a greater guarantee of uptime, but it might cost you more for that higher level of service.
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2. Time-to-respond & severity
Not all fires are worth responding to right away. Some fires need to be put out immediately. The time-to-respond portion of the SLA defines the severity of problems and how long the company will take to address them. Time-to-respond can also be set based on the user, such as the c-suite gets their problem fixes before the frontline staff.
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3. The escalation path for clear communication
When there are issues involving the SLA then there needs to be people responsible for communicating between the SaaS company and the SaaS purchaser. For example there might be a SaaS customer support unit for one type of issue and for another type of issue that might mean a manager or c-suite executive needs to be involved immediately. The types of issue and when escalation is triggered are typically called escalation points.
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4. Penalties
All agreements include reference to consequences should one of the parties breach, or violate the terms of, the agreement. SLAs are no different. Penalties can take the form of free usage time or credits that provide free usage to make up for the violation of the SLA, often related to a downtime issue.
An important thing to look out for is whether a SaaS provider includes a significant amount of service credits for downtime issues. Doing so shows that the SaaS provider is confident in their ability to meet their uptime requirements.
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5. Exclusions
The weapon of a savvy SaaS legal team is the use of exclusions. Much like insurance coverage, the exclusions are critical to understand what is really covered. The SLA may carve out special circumstances for downtime and remove penalties in other instances. Any exclusion should be crystal clear and justified when discussed.
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6. Reporting
Important for mutual understanding and evidence should the need arise, reporting requirements allow for the SaaS purchaser to understand and hold accountable the SaaS company for metrics like uptime, downtime, and performance. These are often provided on a weekly basis and should be part of regularly scheduled SLA meetings to discuss any issues.
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7. Service termination
Every SLA should include a termination clause that allows the SaaS purchaser to end the agreement. Often this can be subdivided into termination with cause and without cause. With cause typically means one of the parties violated the terms of the agreement to a certain degree to give the other party cause to terminate the agreement. Without cause simply means one of the parties wants to end the agreement even though the other party did nothing wrong.
What this means is that in some cases there is a justification for one party to leave and they usually mean no penalties apply. If there is no justification, usually the party leaving will need to compensate the other party for leaving before the end of the term of service has ended.
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Plain language is better than legal contract jargon
“Thereto,” “Wherefore,” “Party to the second party shall,” are you banging your head against the wall yet? Contracts, including SLA, are known for containing archaic phrases out of a lackluster performance of Hamlet. But what is an SLA at its core? A mechanism to communicate expectations. That means both parties need to understand those expectations, not just their lawyers.
SLAs should use terms that are common to the industry and to the general public. A definitions section may be appropriate for some terms, but the goal should be to use the simplest word that effectively gets the message across. If your lawyer tells you otherwise, send him a copy of Plain English for Lawyers.
Putting it all together
An SLA is a document memorializing your understanding and plan should things go wrong with the SaaS service. SaaS companies see it as managing there risk but also communicating clearly to their customers what could happen should things go wrong. Take what you learned in this article and ask questions of your SaaS providers. After all, SaaS still means Software as a Service.