Legal concerns in software support agreements

Software developers (Developers) need to ensure that they consider how they provide support (both technical and product support) when taking their application (Software) to market.  This applies regardless of the system architecture, however it is usually more important in the case of mission critical systems and those used for businesses.  In the world of software as a service and robust mature systems how support is to be provided can often be overlooked until an important customer asks to review the terms of service, the SLA or the support contract (Support Agreement) with an eye to negotiating the levels of service they can expect.

A Support Agreement can also be known as a service level agreement (SLA).  Regardless of how they are labelled it’s usual for such agreements to deal with the ‘levels of service’ and response times for example, that the customer can expect from the software developer or vendor.  One of the most important considerations for a Support Agreement is the distinction between support for the software, user support and technical or product support.  Related to this are the notions of supported and non-supported items and the issue of escalation procedures, particularly where the software supported is mission critical to the business.

Generally a Support Agreement is not a standalone obligation, its existence depends on the customer having a licence to the software from the Developer or a right to access the software in the case of a hosted application.  The factor being common to both is that the client does not own the software which they seek to obtain support for.

The installed versus hosted software divide

Apart from the parties to the agreement and the commercial terms such as what the customer will pay for support, the substantive clauses of Support Agreements differ depending on whether the software is installed on the client’s server infrastructure (Installed Software) or whether the developer arranges for hosting on third party infrastructure such as Microsoft Azure or Amazon web services (AWS)(Hosted Software).

In the case of Hosted Software it’s possible that customers share the hosting infrastructure with other users of that software potentially creating further legal issues to be addressed in the contracts. Regardless, Developers need to draft Support Agreements, taking the following into considerations:

Installed Software:

• how and when updates to the Software are completed;
• on what terms is the Developer allowed to access the customers’ server infrastructure;
• whether the Developers’ employees and contractors need to be bound to any sort of obligation of confidence;
• who is responsible for security and penetration testing for example;
• access to the customers data and the customers instance of the software; and
• responsibility for updates to the hosting environment.

Hosted Software:

• who pays for the hosting;
• whether a fair use policy is required for excess data use or hard data limits are to be set;
• who has access to the environment;
• how and when updates to the Software are done;
• who is responsible for testing the updates; and
• responsibility for backups of the data.

Clauses which are common in Service Level Agreements regardless of the hosting environment

Clauses which need to be considered by Developers regardless of how their software is architected in Support Agreements include:

• the difference between technical (when the software produces errors) and product support (when users need help to make it work);
• a precise definition or meaning of what constitutes an ‘issue or bug’;
• the escalation procedure associated with bugs and expected resolution times;
• items that are excluded from support;
• pricing and payment for support provided;
• whether the Developer offers any ‘uptime guarantees’;
• how support is to be provided and the hours during which support will be provided;
• whether support provided is part of a warranty claim from the Developer;
• whether a Support Agreement is required for the Customer to obtain any other benefits such are upgrades or involvement in a user group for example;
• whether support is packaged into levels such as a ‘bronze, silver or gold’ that entitles the customer to so many hours per month for example;
• whether the customer requires the code to be placed in escrow in the event of liquidation of the Developer;
• term or the duration of the agreement;
• renewal terms;
• a method of classifying the severity of an issue; and
• uptime guarantees and whether any penalties should be imposed on the developer should these terms be breached.

There is very little Australian case law dealing specifically with Support Agreements and SLA’s both in the software development and managed services sector.  That said the case of Baan Australia Pty Ltd v George Weston Foods Ltd [2000] NSWSC 504 (8 June 2000) (Bann Australia) dealt with the issue of implied terms in these sorts of contracts.   The issues for determination by the Court in this case was whether or not various implied terms were to be imported into software licence and support agreement (SLSA) between the parties in order to provide George Weston Foods with a legal remedy against Baan Australia.  Because of this there was necessarily a discussion of the principles of business efficacy and the case of BP Refinery (Westernport Pty Ltd) v Hastings (1977) 180 CLR 266.

Baan Australia shows the length that some organisations will go to attempt to find a legal remedy in the Courts where the contracts, on their face do not assist.  This case also highlights the need for precision in drafting software licences and that care needs to be taken so as to avoid incorporating any pre-contractual representations into such contracts.

Takeaways

SLA’s are as unique as the software and services they relate to.  There however are significant differences depending on how the software is hosted and which party is responsible for the hosting environment.    Whether the clauses listed above are appropriate will depend on the hosting, the ownership of the software and whether or not the software is used in a business environment.

Links and further references

Legislation

Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth)
Copyright Act 1968 (Cth)
Privacy Act 1988 (Cth)

Cases

Baan Australia Pty Ltd v George Weston Foods Ltd [2000] NSWSC 504 (8 June 2000)
Peter Peter Pan’s Backpacker Adventure Travel Pty Ltd and Anor v Eye Jam Interactive Pty Ltd [2012] QSC 227

Further information about software development

If you need assistance with software support agreements, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

---

Related insights about software development