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If you’re a lawyer for a company selling a service or product, you want to make it as easy as possible for your sales colleagues to sell more of your services or products, right? Of course!
The conversation might go something like this:
Lawyer: I recommend we include our customers’ affiliates in our agreements so that we can sell more widgets and user licenses without entering into new negotiations every time.
Client: Smart thinking legal! So we can simply add “affiliates” to the definition of “Company” in the agreement and we’re ready to go, right?
Lawyer: Hold that thought, let’s discuss.
What to know about SaaS Master Service Agreements
There are many ways to allow your customer’s affiliated entities to leverage your master agreements (MSAs) or the services covered by those agreements, but you’ll first need to consider the bigger picture of your contracting and licensing processes. Then, you’ll draft an agreement (or edit the counterparty’s agreement) in a way that reflects the reality of what can become quite messy when multiple entities get involved.
Let’s take a real-life example. Lexion Chief Legal Officer, Jessica Nguyen, loves it when she can avoid negotiating separate agreements with affiliates. So as a SaaS vendor, she will generally structure her agreements to allow her customers’ affiliates to use the service.
However, in the In-House Connect CLE on “How to Redline SaaS MSAs and DPAs for In-House Counsel,” she discusses how, when doing so, she will pay special attention to how that impacts the liability and third-party beneficiary clauses to ensure she is not inadvertently exposing her company to additional liability or risk by virtue of including multiple parties on the agreement.
3 key clauses to benefit customer affiliates in SaaS MSA
Here are three specific areas to review if you’re looking to allow customer affiliates to benefit from your master agreements:
Definitions and parties
First and foremost, understand how you are including affiliates.
For example, how do you define “Customer” in your agreement? Is it a specific entity or is it the entity and its affiliates? Or, are you expanding the definition of user, and allowing a certain number of users that are the customer’s affiliates to use the service from the customer’s account without those entities being considered additional parties to the contract?
How you structure the definitions will impact how you review and draft the rest of the agreement.
Risk allocation
As counsel, one of the core items we’re looking at when reviewing a contract is when something goes wrong, what are the remedies?
With that in mind, make sure you’re considering how including affiliates impacts your risk allocation provisions including insurance, indemnification, limitation of liability, etc. Consider the fact there are multiple entities potentially on the other side of any dispute. Which entity do you want to seek remediation against? Should the entity on the master be liable for breach of the contract by an affiliate? How do you want to structure your liability caps—are they aggregated against Work Orders/Subscriptions (“fees paid under this Agreement”, or capped separately for each “fees paid under the particular Work Order”)?
You’ll also want to take a look at the indemnity provisions, especially third-party claims. Look at the scope of the indemnity and it should be clear that it is limited to true third-party claims so that a customer can’t bring a claim related to their affiliates (that they couldn’t bring themselves) against the vendor via the indemnification process.
Beneficiaries
While generally boilerplate, Jessica also looks to the third-party beneficiaries clause and makes clear that affiliates are specifically prohibited from bringing a direct claim against the SaaS vendor unless the affiliate has entered into an order (i.e., is a separately paying customer).
From the vendor perspective, she doesn’t want to be subject to hundreds of separate claims from affiliated entities when only a single entity is paying a nominal amount for the services.
Check out the webinar if you’d like to see her sample language.
Disclaimer: The information in this blog post is not legal advice and is provided for general informational purposes only. Contact your lawyer for legal advice.
Frequently asked questions
What is the purpose of a master service agreement?
A master service agreement (MSA) is a contract between two or more parties during a service transaction. An MSA sets the expectations and terms for a long-term business relationship, including the governance of all current and future activities.
With an MSA in place, both parties are able to act quickly and plan for the future.
What should an MSA contain?
Master service agreements should include:
- Payment terms
- Intellectual property rights
- Confidentiality
- Termination provisions
- Indemnification
- Warranties
- Limitations of liability
- Notice terms
- Dispute resolution
