Channel programs News

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

Joseph F. Kovar

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.

Pro-actively add feel-good wording about how security is provided to the contract, Grossman said. But when it comes to who is responsible for lost or compromised data, less is more, Grossman said. Providers ideally should not bring up this topic because the result will be confusion. "No one wants to risk litigation when the outcome is uncertain," he said.

In the force majeure section of the contract, which lets an agreement be terminated due to circumstances beyond the provider's control, Grossman suggested including only war, national emergency, civil disturbance, terrorist acts, military action, riots, epidemics, famine, plague, or the action of a court or public authority.

To mitigate customer concerns that a service provider might someday go out of business, Grossman suggested setting up an agreement with a competitor to take over if that happens. The cost of such a move is low, and it could become a revenue opportunity.

"If you charge $50 a seat, tell them to add $10 per seat to have Iron Mountain as a contingency," he said.

Managed services providers who attended Grossman's presentation said they heard several tips they will take back to the office to help improve their contracts.

Simon Tutt, president and EO of DP Solutions, a Columbia, Md.-based MSP, told CRN that Grossman's comments about how penalties in a contract are not enforceable while liquidated damages are is important.

"Now I have to go back and check my contracts again," Tutt said. "My contracts were written by a paralegal, but have changed over the year."

Tutt agreed with Grossman that it is important to have a cookie-cutter contract that is reasonable for both sides. "I like the idea of having something reasonable in hand instead of going into negotiations hard-core," he said.

Jeff Gombos, owner if ICXpress, a Shelton, Conn.-based MSP, said Grossman's tips are relevant and important to all solution providers, especially those who offering software-as-a-service.

"You have to protect yourself," Gombos said.

Gombos said it is also time to review things in his contracts such as the force majeure provision, making sure his company is not offering price caps, and being careful when it comes to responsibility for lost or stolen data.

Joseph F. Kovar

Joseph F. Kovar is a senior editor and reporter for the storage and the non-tech-focused channel beats for CRN. He keeps readers abreast of the latest issues related to such areas as data life-cycle, business continuity and disaster recovery, and data centers, along with related services and software, while highlighting some of the key trends that impact the IT channel overall. He can be reached at

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