Commercial Agreement

What should I look out for in my Vendor Agreement?

May 30, 2023

This week, we’re shifting gears from our consumer-focused posts to cover a frequently asked topic from our business customers. Not unlike individual consumers, businesses signing contracts from their vendors also must understand the fine print and negotiate for themselves. Let’s take a look from the perspective of SaaS Vendor Agreements.

  1. Duration, Cancellation, and Renewal

    Contracts can either be a set term or be a reoccurring subscription. It’s important to understand how cancellations and automatic renewals may apply. Subscription vendors typically provide a period before the end of each term where you can terminate with no penalties, after which you may be on the hook for a new term. For annual subscriptions, you may have 30 days, for monthly subscriptions, you may need to cancel before the end of month.

  2. Billing

    When it comes to paying your vendor, review the payment frequency, payment period, and applicable late fees. An example setup would be paying quarterly with net 30 and 1% interest for delayed payments. Ensure the terms match well with your internal standards so payment terms are standardized and consistent. Make sure the Vendor Agreement also stipulates what to do when there is a billing disagreement, such as providing a 30 day period after invoice for disputes.

  3. Service Level

    Five 9s, or 99.999% refers to roughly 5 minutes of downtime a year. SaaS vendor service levels ranges from 1 to 9 nines, so make sure the uptime is suitable for your intended workflows. Downtime is due to either planned maintenance or unplanned outages. For planned downtime, identify the Notice Period of how many days heads up your Vendor will provide. For unplanned outages, identify the Support Levels for response times available to you depending on outage severity. Ensure the Vendor will refund you Service Credits (e.g. 10% of subscription fees is a common refund amount) when Service Levels are not met.

  4. Liability

    What happens when your Vendor’s downtime disrupts your operations? One of the main themes we discussed in our Indemnification post apply here. As a customer, you are incentivized to have your Vendor be responsible for as much as of your losses related to the Vendor’s services as possible. Your Vendor, on the other hand, will aim for the customer to just receive Service Credits and cap their Liability to fees paid in the last 12 months. You’ll likely have to meet somewhere in the middle.

  5. Confidentiality and Logo Rights

    As the customer, you have very little incentive to publicize your relationship with a Vendor. Your vendor, on the other hand, often needs to publicize customer relationships for marketing and sales. As such, there is a balance between Mutual Confidentiality of all business details vs. public case studies that deep dive into the business use case. Ensure that confidentiality applies broadly and indefinitely, and each public disclosure such as Logos and Press Releases require your prior, written consent.

  6. Dispute Resolution

    Last but not least, for every agreement, there must be a way to resolve disagreements. Look for the state of jurisdiction whose laws governs your contract and will be the location for any lawsuits. Identify who will be responsible for legal fees and if there is a procedure to follow for disputes, e.g. some Vendor Agreements require an amicable resolution period between Customer and Vendor before disputes can be filed in court.

As we review both individual and business contracts, it’s fascinating to see the similarities and differences in the content and negotiation dynamics. If you’ve been bogged down by your Vendor Contracts, or want to streamline your own Customer Contracts, DM Nanfei, let’s chat!

For advocacy and beyond!
The Ask Ginkgo Team

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