According to Sastrify data, the average software stack includes over 136 tools, and each tool comes with its own usage terms, contract period, commitments, KPIs, SLAs & more.
If you want to sign deals that help you achieve your business goals within budget, then you need software contract agreements that cover your commercial relationships from top to bottom.
Let's dive into everything you need to know about contract agreements, from how they’re written to what’s inside and how you can manage them going forward.
What is a software agreement?
A software-as-a-service agreement, or software agreement, is a binding legal document — signed by both the buyer and the vendor — that outlines the terms and conditions for the delivery and usage of a product. software is typically hosted in the cloud and accessible to users over the internet from any location.
Common terms and conditions include how users access and utilize the software, administrative services, payments, and cancellation. To see an example, download Sastrify's Master software & Services Agreement Template.
How is a software agreement structured?
software agreements define the terms and conditions for the buyer and their access to the software of the vendor, as well as the obligations and responsibilities of the vendor to the buyer.
9 typical contract terms are:
- The vendor’s platform information
- The prospective buyer’s business license information
- Start and end dates for the subscription service
- The subscription tier or pricing package chosen
- Automatic renewal clauses
- Payment terms
- Licensing agreement terms
- Security policies and legal information
- Contractual obligations and more.
software contracts also usually include a variety of key clauses that define the T&C in further detail, ensuring both parties are aware of their obligations.
The 9 most important clauses in software agreements
1. Access rights & scope of license
The scope of the license or access clause defines the ways in which users are permitted to use your product. These clauses are not universal; they can provide users with varying scopes and types of rights.
With modern software companies, access clauses are more relevant than license clauses because most products are not sold on a license basis, unlike traditional downloadable software. Storing copies of software on a user’s device is what would require license agreements. So, you’re more likely to see the scope of access clauses.
2. Limitations of liability
A limitation of liability (LOL) clause is used by the software services to protect themselves from legal action by an end user seeking certain damages. Since the buyer will sign the agreement after software negotiations conclude, they will be contractually bound to this clause.
If, for example, the software model doesn’t work properly and the buyer’s company experiences damages as a result, the limitation of liability will limit the buyer’s ability to recover any losses. (Check out our agreement checklist here.)
3. Subscription plan and terms
This clause should define what your subscription includes; pricing, payment terms, and how the vendor will deliver the agreed-upon services. As a buyer, you should be able to see precisely how much you will be charged, how often, and what method of payment will be used.
Most software agreements use monthly, quarterly or yearly subscriptions. All of this can be discussed during the software procurement process and as your team negotiates with the software vendor.
Our software Spend Management Guide can help you optimize current and future software spending.
Shine a light on hidden subscriptions and learn how to save on software with Sastrify's spend management guide.
4. Data ownership and security standards
The use of a piece of software will generate a significant amount of sensitive data, on both the user and the provider side. A clause on data ownership and data security will define who owns the data collected by the software company.
Note that in most subscription models, software providers are usually responsible for hosting customer data, it can be confusing to define who owns the data.
The clause should also include:
- How information can be stored, disseminated, and accessed
- A privacy policy on data protection and third-party access
- Information on physical security, backups, encryption, and what happens if there’s a security breach
5. Customer service and support
A clause on customer service will outline how the software service has agreed to provide support to the buyer in regard to the software. It should also give a window for response time, information on which team will be in contact with the customer, and any other applicable service guarantees.
6. Termination and renewal requirements
The clause covering termination, renewal dates, and length of a contract is very important in software. Many software contracts will auto-renew, meaning the agreement will automatically restart for another term and customers will be charged monthly or annually without the vendor having to repeat the sales process.
Auto-renewals can be a huge issue for buyers who miss the transition period. They then lose their ability to negotiate a new binding contract (when applicable) or make any changes to their subscription before the new agreement comes into effect.
So, reading renewal clauses carefully and adjusting as needed is strongly recommended.
7. SLAs (Service Level Agreements)
A Service Level Agreement is a legal contract defining in more detail what the software vendor’s software will provide and what the software buyer expects to receive from the vendor. The SLA can be a stand-alone document or can be a clause within the larger software agreement.
For software specifically, the SLA is used to set minimum performance standards, particularly around service availability (i.e. uptime). The smaller the uptime percentage, the higher the (negative) impact on the end users. The industry benchmark is 99.9% guaranteed uptime, but most software vendors today promise 99.99% uptime.)
Other items that can be included in the SLA include response times, support, pricing structure, penalties for the provider not meeting guarantees, performance metrics and KPIs, customer data security, compliance, and more.
8. Subcontracting
A subcontracting clause will outline whether the software service is legally allowed to subcontract out the supply or servicing of its software product on a given business day or on an emergency basis.
9. “Force Majeure” event
A “force majeure” event clause generally excuses a vendor’s non-performance or break in service when it is due to circumstances beyond its control. Examples of a force majeure event would be a pandemic or action by a government body, but it’s worth considering (and discussing) what else falls under the definition in each specific case.
How to monitor service level agreements (SLAs) After the SLA has been designed, written, and negotiated, you will need to ensure ongoing monitoring. This might include:
- Reporting on the SLA metrics
- Fixing issues
- Executing any necessary upgrades or improvements
- Contract lifecycle management tasks
- Updating the SLA or metrics
- Updating methods of reporting
- Change management
- Other administration and monitoring tasks
How to monitor service level agreements (SLAs)
After the SLA has been designed, written, and negotiated, you will need to ensure ongoing monitoring. This might include:
- Reporting on the SLA metrics
- Fixing issues
- Executing any necessary upgrades or improvements
- Updating the SLA or metrics
- Updating methods of reporting
- Change management
- Other administration and monitoring tasks
How to sign a great software agreement
Getting the best software management and contract agreement terms can be tricky without an inside look at how each vendor operates and how they run their negotiation process.
Sastrify created a blog series to help you master service agreements, especially renewals, with some of the top software solutions on the market:
Have another tool you want software contract negotiation tips for? Let us know in the comments!
How do I write a software agreement?
The software vendor is typically responsible for drafting a software contract agreement. However, the buyer can then negotiate to make any desired changes, ensuring that aspects like intellectual property rights, confidentiality terms, and licensing rights are properly addressed.
But writing software contracts is so much easier when you start with a free template below.
Master Software (software) & Service License Agreement Template
The software procurement experts at Sastrify have extensive experience in negotiating software contracts for business leaders, ensuring aspects like regulatory compliance and security policies are covered. That’s why we developed a free software contract agreement template: to make it easy for software buyers (or vendors) to easily create a software service contract without wasting time and resources.
FAQs about software agreements
Is a software agreement similar to a terms and conditions agreement?
A Terms and Conditions agreement (T&C) is a contract between the vendor and the users that defines 1) what is being offered to customers and 2) what is expected from them in return. It is a major part of an overall software agreement; however, the software agreement is more all-encompassing and includes other aspects that wouldn’t be included in a basic T&C agreement.
What's a typical price increase I can expect when renewing my software subscriptions?
The price you get on a software renewal contract will depend largely on your negotiations, any changes to the contract, and the economic environment. With quality negotiating, commitments, and proper forecasting, you can likely even achieve a lower unit price at the renewal date. Learn more in our software Spend Management Guide.
However, it’s also crucial to understand the larger economic forces at play during a renewal cycle. For instance, many software companies have increased prices in 2022 due to factors like inflation, increased labor costs, retention requirements, and more. Our upcoming report on Preparing Your software Stack for a Downturn will dive into how you can mitigate these concerns.
If you’re looking for a software solution to negotiate better and save more money, Sastrify is precisely what you need. Take a look at these top 11 tools our customers save big on – we can help you negotiate any new software contract or renewal with ease. See how much you could save here.
What's the difference between SLA and KPI?
Both Service Level Agreements (SLAs) and Key Performance Indicators (KPIs) provide useful information, but they are different. The SLA is a part of the overall software agreement and outlines the service the vendor is committing to the buyer on both a qualitative and quantitative level.
A KPI is used to measure the vendor’s performance in comparison to its strategic goals. KPIs are often a part of the software SLA, helping to measure the delivery of the service against the benchmarks laid out in a software agreement.
Who owns the data in a software agreement?
A software agreement or SLA (Service Level Agreement) will cover a variety of topics, including 1) data ownership and security and 2) where software applications and data are hosted. In most cases, the software vendor hosts the application and data uploaded by their client. However, the customer generally retains ownership of their data. That being said, country-specific laws can have an impact.
To help get you started, we put together an easy-to-understand Master software and Services Agreement free template that perfectly manages expectations and responsibilities. Copy the Google Doc, fill in the prompts and put pen to paper in under 5 minutes.
