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How IT leaders can negotiate a SaaS partner contract

John Moore | July 11, 2012
All companies great and small will eventually work with a SaaS provider. In most cases, the standard contract should suffice, but CIOs will never know what they can add (or subtract) if they don't ask.

That's easier said than done, notes Jeffrey Kaplan, managing director of THINKstrategies, a consulting firm that focuses on cloud computing. He says the level of contract negotiation and service-level agreement (SLA) options will vary depending on the nature of the SaaS application.

"There are a lot of apps out there that are relatively commodity oriented ... where there is no negotiating at all," Kaplan says, adding that some SaaS arrangements involve little more than signing up online and submitting a credit card.

Organizations may have more leeway to ask for special terms in the case of mission-critical SaaS applications, but even here vendors may prove reluctant to depart from the standard wordage. Kaplan says vendors of enterprise-class SaaS applications may not stray from their terms and conditions unless the customer wields a significant brand name or has considerable buying power.

Smaller companies may possess limited negotiating clout, but may still find room to bargain.

Oswald D'sa, recently appointed CIO at Xora, says the early-stage companies and mid-sized startups he has worked for in recent years generally haven't sought to change a lot of contract terms. However, he said a company may seek to negotiate on price, particularly with commodity SaaS vendors whose services can be easily switched without serious impact to business process. These include monitoring and management services.

"Many of the SaaS services are becoming more like commodity services, so price becomes a big issue," D'sa says.

Xora provides SaaS-based mobile workforce management products and, as a SaaS customer itself, uses such offerings as and New Relic for monitoring and management.

D'sa says a smaller company working out an arrangement with a SaaS vendor may opt to give up a few nice-to-have features or functions to obtain a better price. The view from SaaS providers and hosting vendors is much the same. The basic contract will fly in most cases, but negotiations do occur in a fairly narrow range of circumstances.

Randy Fougere, senior vice president of sales and marketing at Tenzing Managed IT Services, which provides SaaS hosting services, says the company's master services agreement "goes through as is" about 85 percent of the time.

Those situations in which customers seek assurances beyond the standard contract tend to involve the addition of performance-related clauses, he notes. For example, a customer who experienced issues with a previous managed services provider may ask for the right to terminate the contact without penalty if the contractor breaches its SLA for three consecutive months.


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