Lawyer: Keep SaaS And Cloud Contracts Light On Specifics, But Heavy On Revenue Opportunities


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Solution providers: don't let long, tedious contracts get in the way of closing deals. That's the advice of lawyer Mark D. Grossman, who spoke at the Ingram Micro One conference this week.

Grossman said solution providers should design a "cookie-cutter" contract – one that can be used with multiple clients with little modification – to make the sales process much shorter.

The key to that is to keep as much of the contract as ambiguous as possible, he said. "None of this is unethical or immoral," he said. "Everything is agreed to … I want to help you close deals. Don't get bogged down in legal terms."

[Related: Ingram Micro Execs To Channel: Look To Peers, Distribution To Fill Expertise Gaps So You Can Meet Business Challenges]

That, of course, doesn't mean a channel partner should automatically say "no" to a client request. "If it's something you can reasonably offer, and it doesn’t add to your cost, it's actually an opportunity," he said.

Another thing to avoid in contracts, according to Grossman, is specifics when it comes to SLAs, or service level agreements. Most clients are not that sophisticated, and typically only require "two nines," or 99 percent, uptime guarantees. "So offer a reasonable-to-you SLA," Grossman advised. "You know what most customers do? Check. SLA included."

All contracts should include what Grossman called "reasonable loopholes." One such loophole is to specify a penalty instead of damages in case of an issue such as downtime because, despite what most people including lawyers think, penalties in contract law are actually not enforceable, he said.

"When you talk about failure to meet SLAs, don't talk damages," he said. "Talk penalties. Most lawyers won't catch it." What is enforceable are liquidated damages, which approximate actual damage but can be paid in the form of credits for the disrupted service, Grossman said.

In about 99 percent of cases, a good businessperson will pay some penalty, but it is important to not be specific in the contract because a service provider might someday face litigation, and litigation is going to war, Grossman said. "If you have a loophole … and they don't catch it, it's fair game," he said.

Offer limitation of liability it in such a way that it becomes a revenue opportunity while not putting the service provider in jeopardy, Grossman said. "You can't be their insurance company," he said. "They have to have a backup plan … Customers have to take responsibility for their own IT."

Grossman also urged solution providers to resist agreeing to carve out limitations of liability for certain types of problems as claims by a third party, infringement of intellectual property or non-disclosure agreements, vendors not complying with the law, or personally identifiable information, Grossman said.

Instead, offer a higher limitation of liability up-front, such as more months of credit in the case of a data breach, he said. "Customers will check that item off," he said.

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