Software developers are increasingly offering
their products as an on-demand service with full support rather
than simply as boxed products. But the very different nature of the
delivery of software has significant legal implications, says the
US-based Software & Information Industry Association
(SSIA).
"For software as a service (SaaS) providers,
the SLA is used to set realistic expectations for their customers,"
says the report, Setting Expectations in SaaS. "The SLA clearly
defines the service level commitments established by the software
provider and identifies their obligations to the customer and
methods of reasonable compensation should these obligations not be
met."
"For the SaaS customer, the SLA introduces a
new level of accountability from the software provider and a means
to measure and monitor service performance," it says.
The software industry does not have extensive
experience with SLAs because it has traditionally sold products
rather than services. In services industries, such as telecoms,
they outline what standard of service a customer and provider agree
is acceptable for the negotiated price.
Customers and providers alike must take care
in the details of an SLA as it is a legally binding agreement. One
key area is in credits. Penalties for worse service than is agreed
in an SLA generally come in the form of credits, which are applied
as discounts in the next period of service.
"Because of the legal nature of the SLA, it is
important to carefully draft the limits to the remedy for credits
for both parties to the agreement," says the SSIA report. "The
credit calculation must unambiguously cover the different types of
failure and should clearly define compensation due for extended
single outages or cumulative periods of downtime within a fixed
period."
"Unless these credits have been unmistakably
defined, there is a huge risk of misinterpretation for credits due.
In addition, the SLA must outline the maximum credit that will be
available for any period," says the report.
It should also be made clear in what
circumstances no credits will accrue. This can be for unexpected
circumstances out of the control of either party, known as 'force
majeure', for changes ordered by the customer outside of the
original agreement, and for scheduled downtimes.
The agreement should detail what hours the
provider is available and when it is not, as well as the expected
availability of the provided service, expressed as a percentage.
The customer should agree with the service provider what kind of
failures count as chronic, and how penalties will apply.
“This white paper specifically focuses on how
the SaaS model requires formalised commitments between provider and
consumer,” said David Thomas, executive director of the SIIA
Software Division. “It is part of the continuing story of how the
SaaS model requires new and different operational methods compared
to traditional software.”
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