The point of this numbers exercise is to stress that four and five nines are rigorous standards that come with a cost. If your company wants and needs five nines, your service provider may have to throw lots of redundancy at the promise, and that redundancy comes at a cost to the buyer. For example, five nines might mandate using two different data centers that are geographically remote from each other to help accomplish the SLA’s requirements in case of a power- or weather-related problem in one region. This type of redundancy is not free. So, if your operation is willing to accept 99 percent uptime (“two nines” in the lingo), or about 7.2 hours per month of downtime, go for the lower price that probably comes with the lesser SLA. You may remember the controversy surrounding cloud and SaaS services that followed storm-related outages at companies like Netflix and Salesforce.com in June 2012. Many of the articles at the time spoke about the reliability issues inherent with cloud and SaaS services. Frankly, the controversy was ridiculous. Even if your IT department ran its own data center, no chief information officer (CIO) would ever promise 100 percent uptime. Just an attempt at five nines uptime would require your CIO to demand increased funding for redundant hardware and location. This does not come cheaply. This brings us back to the importance of SLAs. If you need a certain level of service, your agreement should reflect that. Careful and thoughtful contracting can help your company accomplish what it needs in the cloud with SaaS. Moreover, since SaaS fees are usually in terms of monthly recurring service charges, your company could avoid the large capital expenditures required to run its own data center and local software installations. Chronic Downtime One area to be concerned about with SaaS deals is avoiding a mediocre service provider whose failures never quite reach the level of a breach of contract. Instead, they may miss one or more service levels each month in ways that are annoying and disruptive. This is a problem your agreement could address using what some commentators refer to as a “chronics provision.” With this type of provision, you might say “a failure to meet the SLA required metric on three or more individual items in three consecutive months or four of any consecutive six months would be considered a material breach of the agreement.” The buyer of the service would want a provision stating that the credits provided by the SLA for failures would not be the exclusive remedy for “chronics” and that the buyer could seek all damages permitted by law. Obviously, the service provider would want “damages” capped by the credits permitted by the SLA. Many 16 HBMA BILLING • JULY.AUGUST.2014 factors would determine how this plays out, including the relative negotiating power of the parties and the cost of the service. Ownership of Data and Risk of Loss Since your company’s SaaS provider will often store data as part of a SaaS deal, it is important to have express provisions that appropriately deal with the issues of data ownership and risk of loss if data is lost, damaged, or compromised. Data ownership is the easiest issue to address. The contract must have an express statement that your company owns its data and then continue with appropriate authorizations for the service provider to use the data solely for the purposes of providing the services pursuant to the SaaS agreement. No ambiguity should ever be acceptable in this area. Like any negotiation over risk of loss, lost, damaged, or compromised data is the toughest one to negotiate. The SaaS provider’s rhetoric includes statements like, “We are not charging you enough to bear this risk” and “We are not an insurance company.” Your pushbacks should typically include, “You must bear responsibility for your actions” and “Your reticence to accept responsibility is causing us to wonder about your own confidence in your own abilities.” Norms are Lacking People are often in search of the ever-elusive norms in the industry. Using the example of risk-of-loss provisions, I have concluded from my experience in doing these deals that there are few norms and that every deal stands on its own relative merits. If there is a norm, it is that sophisticated SaaS deals are complex exercises in negotiation and contracting, and they usually require many weeks of discussions before the parties can come to a deal. The examples of important provisions discussed in this article and basic negotiation tactics, such as pushing back hard, asking for more than you really need, and not buying into the vendor’s form, are the foundational concepts to effectively negotiating a SaaS deal. ■ Mark Grossman is a business lawyer with more than 25 years experience in technology, telecom, and outsourcing. Mark has written over 250 articles for publication and he authored the book Technology Law – What Every Business (and Business-Minded Person) Needs to Know. Mark has experience with non-disclosure agreements, software audit disputes, privacy policies, and online contracts. Currently, Mark’s principal focus is assisting large companies with their information technology, outsourcing, and telecommunication deals.
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