Technology-based serviced relationships are vulnerable to becoming contentious, even though they have become a critical part of the operating fabric of the modern corporation. For a vast majority of companies, tech providers, outsourcers, third-party consultants, and other types of service providers have a significant role in their day-to-day operations.

Within the context of tech service agreements, it is important for companies to avoid overlooking minute details and understand that doing so could work against them in the event of a dispute. Here, we will address important areas that should never be neglected when drafting a technology service agreement.

What Are Technology Service Agreements

Technology service agreements, also referred to as technology agreements, are legal documents that are routinely used between companies and technology service providers in order to outline their individual rights and responsibilities as they commence a business relationship. A technology agreement can be used to predetermine important factors, such as what is expected from each party if the agreement is terminated as well as the scope of the tech company’s services. In today’s marketplace most vendors offer their Software application along with hosting services, that they often source from vendors like Amazon Web Services or Azure. They often also offer additional optional Services like Managed Service where you process your data on their host, using their Software and they provide many of the staff administrative services to help support that operation. There are many different flavors of (Platform, Software, X) as a Service but in every instance, you are engaging a 3^rd party to perform some portion of the information processing that historically was supported by your in-house staff; that dependency needs to be understood and properly addressed in your vendor Agreements.

Agreement Terms That Should Be Acknowledged

1. Right to Use and Disaggregate Services

A customer has the ability to choose a multitude of services, including services tailored to their company’s needs, a selection made from a menu of preselected options, and even a combination of both. In many cases, services are usually drawn from different lines of service, which are within the provider’s organization and frequently leveraging third party vendors as “sub-processor” as it’s called under privacy regulatory parlance. The categories of service may be stated on the Vendor’s Order Form that reference more detailed line-item SaaS or Managed Service line item descriptions; or for more customized offerings they could be outlined in a separate statement of work, with its own supplemental terms.

A customer’s opportunity to change the service relationship during the term, varies by vendor but often depends on the organization of the services. It is important to ask whether a customer has a right to end an individual line of service while still having the opportunity to continue to purchase a non-terminated line of service. Is there special notice of change requirements, transition options to assist the customer, and knowledge transfer provisions? From a client’s perspective, it is always in the customer’s best interest to retain flexibility. Meanwhile, tech service providers may want to seek to maintain the size of the transaction as an individual, integrated tech service relationship. The terms of the contract could define how a dispute can be resolved.

From a cost benefit perspective, Vendors are often well positioned to offer Customer very attractive rates and time-to-value implementation options; however, those business models (and required internal investments) typically only scale upwards. The Vendor cannot retain a trained staff to deliver on demanding Service Level Agreements when they offer longer terms subscription (typically 1-5 years).  So generally, vendors require a longer term, non-cancellable commitment. Where a termination or a non-renewal is required, it generally requires a fairly significant notice period (i.e. 90 days) so that the vendor can adjust their staffing model, if necessary.  On one hand, contracts could provide customers the right to end the certain services under their discretion. On the other hand, a tech service agreement could stipulate an all-encompassing approach that requires clients to exercise their right to terminate the entire tech service relationship. The on-ramp and off-ramps to a technology required detailed planning up-front, before the Agreement begins, monitoring and periodic review at least quarterly, and where necessary change through a mutually agreed change order process.

2. Termination Assistance

Generally speaking, most tech-based service relationships do not involve customers replacing their service providers on a walk in, walk out basis. Service providers will usually possess, control, and own materials and information clients require to continue their operation. This may involve equipment, software, third-party contracts, and even confidential information. Essential information could potentially be held by service providers without being reported in transferable forms. Aside from the infrastructure, transition will require transition of the customer’s data, this is a requirement under many privacy regulations but it is an operational requirement, even where personally identifiable information is not involved.

A majority of service providers will cooperate when transferring materials or information upon the termination of an agreement, but a client can never depend on the provider’s goodwill when a dispute arises. This would in turn result in an unfavorable situation for the client who is ultimately being held for ransom at a time when they believe the provider has breached the agreement by failing to perform. In order to undermine the risk, technology service agreements will need to address the following:

• A client’s right to retain their data and sensitive information;
• Transferable equipment, third-party contracts, and software licenses that may be required for the continuation of services; and
• The client’s right to use the provider’s services while transitioning to a new tech service solution.

3. Notice of Violation and the Opportunity to Rectify

In a technology service agreement, dispute-related terms can have a profound impact when there is a threat of litigation or an actual legal dispute. For the most part, when there is a dispute between the parties, the first step a party will take is to provide a notice of the violation to the defaulting party. The notice will communicate in which way the party is failing to perform. The notice will also outline the demand for performance, which should be in accordance with the provisions stipulated in the agreement.

Providing the notice of the violation is important, but it is also a vital step to take as it paves the way for an opportunity to file a lawsuit for the breach. Essentially, the notice will establish a record of the violation and the issuing party’s persistence in having the breaching party perform their contractual obligations.

Should you press for mandatory arbitration, if so where and under what rules? Or is it preferable to leave dispute resolution to the courts. Remember, a remedy is only effective when you can avail yourself of that remedy within a reasonable period of time.

Regulatory Implications

Where is the data coming from, where is the data being accessed, how its protected, where its stored, how its used, and when and how its disposed of are all very important concerns. If that is your customer data, it highly likely you are the party legally responsible for ensuring that all of these items are addressed in compliance with applicable laws and corporate policies (like your privacy policy, Terms of Service, or Acceptable Use policy).

Protect Your Interests with a Trusted Tech Attorney

Technology service agreements are usually used when companies hire other companies to perform tasks on their behalf, such as the use of proprietary software. A technology agreement will help establish each party’s responsibilities in the business agreement, including if there is a need for dispute resolution. In order to avoid tech contract pitfalls, it is imperative to seek proficient legal counsel from a respected attorney you can trust. An experienced attorney will ensure that minute and seemingly unimportant details in your technology service agreement are not overlooked.

Technology Attorney John P. O’Brien counsels clients on drafting, negotiating, and executing collaborative and licensing transactions, which often have an immense impact on their business. With extensive experience in handling these transactions and with knowledge in representing both sides of tech agreement issues, Attorney O’Brien is prepared to assist clients to achieve a deal that protects their interests in a contract.

When considering entering into a technology-based serviced relationship, contact an attorney who has the skills and experience to solve complex and challenging contract issues. Consider hiring the support of Technology Attorney John P. O’Brien to strategize, construct, and execute an agreement that is truly representative of your interests. Schedule a free initial consultation with Technology Attorney John P. O’Brien by completing the online contact form here.