Drafting Transition-Out Provisions in SaaS Agreements: Performance Requirements, Triggering Events, Fees, Damages

Description

Increasingly SaaS customers are asking for detailed transition-out provisions in SaaS agreements. If such terms are not included in a SaaS agreement, the customer's counsel should consider whether adding these terms will protect a client's interests upon termination of the customer relationship.

When it comes to drafting the transition-out obligations, a customer contract drafter should consider the nature of the services and the impact of any termination. Where appropriate, customer's counsel should clearly define performance requirements for the service provider, as well as avoid broad standards of performance phrases such as "commercially reasonable efforts." The transition provision should set clear fee obligations to avoid changing rates during the transition.

When drafting a service provider contract, counsel should include terms that allow the customer to trigger the transition-out clause whenever an expiration or termination occurs, except perhaps where termination is due to the customer's non-payment of fees. Service providers may establish flexible fees in long-term engagements that contemplate market changes. Service providers should consider whether a customer can demand the return of its data in a specified format, and counsel should include terms addressing the administrative costs of this task.

Counsel for both clients and service providers must include how to return the client's data and how confidential information for the parties is handled and how it is returned or destroyed.

Listen as our expert panel discusses critical terms in the transition-out provisions of a SaaS agreement and how to clarify the language so that all stakeholders' interests are protected.