An IT agreement is a contract between a business and a supplier of IT services. Agreements detail the services to be provided, the cost of the services, and the length of the agreement. Solicitors can ensure these contracts meet the aims of the business and supplier.
This is a guide for businesses and IT service providers involved in drafting and managing IT agreements. The content will cover the key types of IT agreements, their importance, and the legal considerations to ensure clear terms and conditions and compliance with applicable laws in IT contract management.
We’ve written this for:
Businesses entering into IT service agreements
IT service providers seeking to formalise service contracts
Legal professionals advising on IT contract law
Small businesses, entrepreneurs and start-ups needing clear IT agreements
Types of IT agreements
There are three main types of IT agreements, here we will explain the purposes of each, what to include in them, their benefits and the circumstances in which they are required by businesses.
1. Service Level Agreement (SLA)
SLAs are contracts between a service provider and client that defines the services to be provided, performance expectations, and penalties for failing to meet agreed-upon standards.
They also set the expectations and responsibilities of both parties. A variety of metrics are detailed in these agreements, including response time, resolution time and product conditions.
Case study:
Service level agreements are used by service providers like Google and Microsoft. Amazon Web Services also uses SLAs to detail the expected service level customers can expect, setting out expected levels of server downtime, guaranteed interface availability and the credits customers are redeemed with when they experience disruptions when the agreement terms are violated.
Key components of SLAs include:
Agreement overview – the agreement opens with a description summarising the agreement. Include the parties involved, an introduction to the services included and when the agreement starts
Services – a description of the vendor’s services listing specific deliverables, timeline for completion and other benefits the client has access to during the length of the contract
Metrics – customer metrics based on their goals. These KPIs enable vendors to understand what their clients consider success and give them an opportunity to support these targets
Points of contact – SLAs should list key personnel for specific elements of a service and how to contact them. This element of agreements limits miscommunication and ensures questions are answered quickly
Exclusions – outline what is not included in the scope of the agreement to set clear expectations and limit liability and potential for disputes to arise
Cancellation conditions – clarify how and when an agreement can be cancelled. Common cancellation conditions include at the end of the agreed term, changing business circumstances, or for breaching the terms and conditions of the agreement. The conditions should outline the consequences for ending the agreement
2. Software Licensing Agreement
These agreements are between software companies and those that use software including other businesses using software as a service (SaaS) products. They protect the rights of software developers and users by outlining the terms for software use, distribution, and restrictions.
They allow customers to use business software and outline how to use it and the limits of how they can use it. Agreements state where customers can install the software, and how many times they can do so. They also include statements about the legalities of copying, sharing and distributing the software to others.
The software’s price and fees are often included in agreements. They are important for software companies to protect against copyright infringement.
Case Study:
An example that many people would be aware of is the Apple iTunes software licensing agreement. Users have to click ‘I agree’ to the agreement which is many pages long. It became the butt of a famous joke on the adult cartoon South Park in the mid-2000s regarding its length and the fact users would not fully read the agreement before agreeing to it.
Key components of software licensing agreement include:
Non-exclusivity – this clause allows software companies to license their software to multiple companies
Non-transferability – prevents a license from being transferred to another party by the user
Rights – it is important to set out that the rights to the software belong to your business after the agreement is signed. Include the software, its name, the copyright, distribution rights and intellectual property rights
Modification – make it clear that you don’t allow the software to be modified in any way
Breach of contract – include a clause that states that if the terms of the agreement are not followed then the service provider can revoke the license
Device usage – outline how many devices the license can be used on, for example on one computer or multiple devices in a business location
Limitation of liability – outlines that the licensee accepts the software as it is and that there is no warranty for the software and its usage
Terms of termination – express the circumstances and methods by which the agreement can be terminated, typically carried out by uninstalling the software from a device. Service providers can also include in this clause their right to terminate the software at any time without needing to give a reason
Governing law – establishes the jurisdiction for settling disputes
3. Cloud Computing Agreement
Cloud computing agreements are agreements between cloud service providers and their clients. The agreements outline the terms and conditions and even terms of use of using cloud services. They cover how the following issues are handled: data protection, service uptime, and data security responsibilities.
Case Study:
Dropbox the file sharing service is a provider of cloud storage solutions. It allows businesses to store files securely in the cloud.
Businesses can keep documents, photos and videos safe in a variety of formats and sizes. Cloud storage gives businesses the ability to access documents wherever they are: in the office, on the road, or abroad. Files can also be synced across multiple devices.
Key components of software licensing agreement include:
Indemnity – specify the level of indemnification the provider will give in the event of a security incident, including damages for losses paid to the client
Limit of liability – outline the liability of the service provider and their responsibilities in case of a data breach
Data – both data security and privacy are important for businesses using cloud services. Agreements should specify policies for data handling, data security and privacy measures that keep client’s data secure. Additionally, the agreement should outline how data protection and privacy rules will be followed, including GDPR
Termination – specifying the conditions under which an agreement can be terminated, such as breach of contract, non-payment, or at the discretion of the service provider. What happens after termination should also be addressed, including the return of data, deletion of data and the transfer of data to another provider