Negotiating SLAs in Tech Contracts

For a customer when an SLA breach occurs, the issue isn’t only uptime. It’s the type of losses they actually suffer when the system fails. And this is the real challenge for buy-side tech attorneys and contract managers. Most SaaS outages don’t create physical or obviously “direct” damages. It’s not a car accident where the harm is visible and immediate. In most cases, it’s workaround costs, temporary staff, missed deadlines, replacement tools, operational disruption. Losses that are sometimes hard to foresee and others that are incurred to mitigate the effect of the breach. The kinds of losses that sit in the grey zone between direct and indirect/consequential damages. Customer attorneys will have an allergic reaction to this statement and always consider that incidental costs like these be considered direct. Vendors argue the opposite. Neither side is wrong, and that’s exactly the problem. But there is another perspective that we don’t offer consider, about service credits. I wrote in a previous post that vendors use service credits to cap their financial exposure for SLA breaches. But there’s another angle we rarely consider on the customer side. Because so many outage-related losses may fall into “indirect” territory under a limitation of liability clause, service credits can actually work in the customer’s favor. A fixed credit avoids the uncertainty of arguing whether a particular loss is recoverable. It takes the entire direct versus indirect debate off the table. From the vendor’s perspective, it’s a reasonable boundary. For customers, it provides certainty and predictable compensation. Of course, credits need to be meaningful. They can easily fall short, so customers must push for numbers or mechanisms that reflect loss. But when structured well, service credits provide a clean, reliable path to compensation without getting dragged into classification battles that may only be decided in court. Understanding both sides' positions is the #1 negotiation superpower. My 10 SaaS Contract Basics Guide breaks down vendor vs. customer positions across the major clauses → https://lnkd.in/d8qpNS2F #SaaS #SaaSAttorney #SaaSContract

I've saved companies millions on enterprise software deals. Here's the negotiation framework I developed at Microsoft, VMware & Instacart: The hard truth: Most SaaS products cost almost nothing to run. Yet I once rushed into a 3-year contract that ended up costing us double what we expected. That expensive mistake taught me something powerful about enterprise deals. Most companies have a broken process: • See a need • Pick a vendor • Rush to close • Overpay massively Here's my 5-step framework to fix this: 1. Start Early (3-6 months before renewal) Companies who begin negotiations early consistently get 5-15% better terms. This isn't just about timing - it's about leverage. When you're not rushed, you control the conversation. 2. Create Competition Never negotiate with just one vendor. Ask each competitor: "What can you offer that others can't?" This simple question reveals hidden costs and scalability issues you'd never find otherwise. 3. Focus Beyond Price The real value is in: • Service level agreements • Integration support • Training resources • Future scalability • Data ownership Pro tip: Demand performance penalties. If they won't include fee refunds for missed SLAs, that's a major red flag. 4. Master the Slow Play Never take live meetings with sales reps. Force all communication over email. Then be slow to respond. This drives sales teams crazy - especially near quarter-end. They'll often improve offers without you asking. 5. Talk to Leadership If the head of sales or CEO isn't deciding your deal, you haven't reached the best possible terms. How to get there? Say "no" frequently. Let the deal drag on. Make it appear lost to the vendor. Using this framework, I consistently negotiate: • 30-50% discounts on list prices • Better service levels • More flexible terms • Additional features at no cost The secret? Software costs almost nothing to run. Vendors depend on recurring revenue. They'll bend significantly to keep your business - if you know how to negotiate. Want to master the founder mindset and build better? Join Founder Mode link in my Bio for free weekly insights on startups, systems, and personal growth.

Today's contract tip is about customizing your service levels and performance metrics for your SaaS vendor contracts. So much of contract drafting is about making sure the terms match the parties' needs and the transaction's risks. This principle is especially true when selecting service levels. We need to include service levels that reflect the customer's priorities, not just which service levels are the most common. Customers cannot always dictate service-level options. With larger platforms, you get what you get. But even then, we must understand our customer's needs to invest our negotiating currency into securing the best terms possible for the more important ones. I have seen so many lawyers fight hard for uptime guarantees for SaaS agreements at the expense of other metrics that were strategically much more important for this particular platform. Let's say a customer is looking at a platform that will be used infrequently and without any particular urgency. A six nines uptime (99.9999%) may not even be a concern for this customer. They may be OK with just three nines (99.9%). But what they may REALLY need is a speed of processing. It may kill the team's productivity if each transaction takes too long to process. In this case, a great uptime is meaningless for transaction processing speed is everything. To figure out the right service level, think about the service and what could go wrong. Not just the big end-of-the-world-as-we-know-it disasters, but the mini-disasters and inconveniences that use the product are so much more challenging or more expensive. Build service levels around what matters to this business for this service, not just common metrics that matter to others. Of course, to do that, you have to understand the customer's priorities and vision for this product. But we need to know that for every contract, don't we? What other insights or advice would you add about service level selection? #ElevatorSLAs #contracts

SLAs will generally specify consequences for failure. Usually that comes in the form of credits against a monthly invoice. But to avoid a #ContractTrap, you need to make sure an SLA failure doesn't also get treated like a regular breach. I like to use two strategies to avoid this, though either one on its own would usually be sufficient: 1 / Specify that any SLA credits are the exclusive remedy for failing to meet the SLAs. 2 / Rather than committing to meet the SLAs (i.e., "Service Provider shall provide the Services according to the SLAs"), use an efforts standard (i.e., "Service Provider shall use commercially reasonable efforts to satisfy the SLAs when providing the Services.") Why is this important? Because if you don't address the risk, then you could give rise to termination for cause or significant damages by failing to meet an SLA, when you likely intended for the only consequence to be a bill credit. How do you deal with this issue? #contracts #inhousecounsel

𝗕𝘂𝘆 𝘄𝗶𝘁𝗵 𝗣𝗼𝘄𝗲𝗿: 𝗡𝗲𝗴𝗼𝘁𝗶𝗮𝘁𝗲 𝗧𝗲𝗰𝗵 𝗖𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝘀 𝗳𝗼𝗿 𝗙𝗹𝗲𝘅𝗶𝗯𝗶𝗹𝗶𝘁𝘆 𝗮𝗻𝗱 𝗙𝘂𝘁𝘂𝗿𝗲-𝗣𝗿𝗼𝗼𝗳𝗶𝗻𝗴 In tech procurement, the smartest leaders don’t just evaluate solutions, they negotiate outcomes. It’s easy to rush into signing when the platform looks perfect. But here’s the truth: needs evolve, vendors change, and what fits today may not fit tomorrow. That’s why flexibility is non-negotiable. Before signing, push for: 📌 Scalable pricing that grows and shrinks with your usage 📌 SLAs that guarantee performance and accountability 📌 Shorter initial terms or opt-outs tied to business milestones 📌 Clear data portability clauses so you’re never locked in One organization renegotiated a 3-year deal to include a 12-month checkpoint tied to adoption metrics, and it saved them from overcommitting to a solution that later proved misaligned. That’s risk management in action. Contracts aren’t just legal formalities, they’re strategic tools. Use them to protect agility, minimize sunk costs, and preserve your ability to pivot. If your tech doesn’t support your future, it becomes your constraint. So negotiate like your growth depends on it, because it does. Need help structuring tech contracts with flexibility built in? With Digital Transformation Strategist, let’s discuss your next negotiation.