Foundational Contracts Part 4 - Levelling the Playing Field

This Oh Lawdy! is the fourth (and last) of a series on foundational SaaS contracts.

In the first 3 parts we established that:

1.    From a buyer’s perspective, SaaS contracts have some great advantages, but they also contain some risks that are particular to SaaS.

2.    SAS vendors are typically much more experienced at selling their services than you are at buying them. It's not a level playing field. 

3.    If you are going to maximise your negotiating power as a buyer, you need to do it in phase 1 when your negotiating power is at its strongest and you can say: “price to this!”.

But saying “price to this!” assumes that you can specify “this” – i.e. the contract, or at least the key terms of future contract – in sufficient detail to avoid arguments further down the line.

How do you get there? Here’s what I recommend.

A.   Get a competent lawyer to draft a set of key terms for the deal, including all the detail that gets argued about in a contract negotiation. Get them to set out all the options available, including what’s market standard and what isn’t, and the trade-offs involved in each option.

B.   Have an internal workshop to go through the key terms. Attending the workshop, in addition to the lawyer, should be all the relevant functions: ops, IT, finance, sales and compliance (if relevant), etc. Debate the pros and cons of each option, and get the lawyer to draft the final set of key terms. Don’t forget to address the key risks that come with SaaS contracts – the supplier going bust (an escrow provision which keeps the supplier’s software up and running for 12 months should be enough), and ensuring your data is protected (daily or weekly downloads should do it).

And that’s your key terms, which you then can tidy up to put in front of potential vendors. If you want to take the long form contract approach, that’s an extra step.

You might think that this is a lot of faffing about and extra cost but, in fact (see part 3), it’s the opposite. You reduce the time and money spent on contract negotiation and, because you have levelled up the playing field, you get a far, far better deal.

11 February 2025