Let me frame this right: when you are selling to an end user, they sometimes say/insist/require that you use their form of agreement as part of the Software agreement negotiations or SAAS agreement negotiations. So what do you do?
- Negotiate, Negotiate. Don’t forget about this, as this is not the time to simply say “yes!” and hope that somehow this will make it easier to close the deal (it won’t). Trust me. What to negotiate? See 2-6 below.
- Price and Terms are Linked. If you think about it, your end user agreement contains your model (what rights the end user receives (and doesn’t get), what restrictions they have, warranties, transfer rights, etc.) and your pricing is based on your model. If your customer wants to significantly change the terms of your offering/model, then this could/should affect the price they receive. Remember this, as price and terms are inextricably linked.
- Time is of the Essence (hopefully). Is time an issue for them? If time is an issue (i.e. there is an impending event), then make sure you bring this up before you agree to use their form agreement, as I have found that using the customer’s form as a starting place will too often lengthen the sales cycle (not shorten it, even though they may tell you it will). Instead, try to start with your agreement, and make the changes that your customer needs to that agreement (much more efficient).
- Set the Right Expectations. Make sure the customer understands that there will likely be a lot of changes to their form agreement (every customer form of agreement I have seen looks very little like the vendors model), as you will have to build your model into their agreement and take the terms that affect your pricing/model out. If you don’t bring this up early and get their buy in to help you work through the open issues along the way, the process of using their form will likely be very long/delay the deal unnecessarily. Oh yea, try to get a business owner/decision maker separate from their legal/purchasing department to help you out, as you will need someone to help you make decisions on open issues.
- It Is All About $. It really is all about the money. If the transaction size is too small, then it could be a waste of your time and resources to start with the customer’s form of agreement (suggest that if the transaction was $x, then it would be worth using their form agreement but as it is $x-y, it is not). However, if the transaction is large then read the other tips in this post, as you may be forced to use their form agreement. Where do you draw the line as to $? That is company specific (= your decision).
- What Are Your Goals? If you land up using the customer’s form of agreement then your goal should be to end up with an agreement that if you sign:
- does not pose any significant risk to your company (i.e. a risk that you normally would not take),
- is administratively efficient (i.e. you don’t have to spend a lot of time maintaining the agreement, tracking it for compliance, looking over your shoulder, etc.), and
- is consistent with your model (i.e. you can still book the revenue as you would other deals).
Keep these goals in mind, or add to/change this list to fit your business model. Just a few thoughts from an attorney that has negotiated hundreds of deals using the customer’s form of agreement for software and SAAS companies.
Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Talk to your attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.
Jeremy Aber of is a Software License Attorney representing Software, SAAS and IT Services Companies, on software licensing, copyright, open source, distribution, reseller, OEM, and master services agreement projects. This article first appeared in his blog.