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The force majeure provision in a B2B SaaS agreement allows a party to avoid liability if they cannot fulfill an obligation due to unforeseen circumstances beyond their control. The clause allows service providers in the SaaS industry to temporarily suspend their roles and duties when sudden and unforeseeable circumstances interfere with their apps and services’ availability, performance, security, and functionality.
Common events include natural disasters such as hurricanes and floods, as well as pandemics, wars, and terrorism. Other events can include civil unrest, labor strikes, power outages, internet outages, and changes in laws or government actions that disrupt third-party services or components.
The article discusses force majeure clauses in B2B SaaS contracts, including their importance, dependencies, potential events, and the need for customization. It concludes with key insights on these stipulations.
Why It Pays to Add a Force Majeure Clause
A safety net in the contract assists SaaS providers in evading liability when they cannot fulfill their duties due to an unavoidable event. This might occur if consumers are unable to access their software or if their software is inaccessible because it is not functioning as anticipated. The main advantage of a force majeure clause in a B2B SaaS agreement is that it liberates the SaaS provider from splitting contractual obligations with no sanctions to their clients.
The other significant benefit is that this type of clause clarifies what constitutes an “unforeseeable event” and explains the duties and obligations of all parties. This proactive approach reduces the chances of conflict and lawsuits. To establish clear expectations, the contract term should list force majeure events and set notification rules. It should also include a reasonable deadline for an excuse from performance and outline obligations for addressing any issues. An abiding agreement must also bring clarity on the rights and obligations regarding the termination. Additionally, it should include any specific commitments that still apply during extreme circumstances.
SaaS Depends on a Lot of Moving Parts
Web-based software applications depend on numerous parts that enable them to perform, operate, and remain secure. They include internet connectivity, content delivery networks, databases, third-party access via APIs and third-party integrations, network bandwidth, and security tools. Most of these resources are interrelated. When one breaks, it may influence the application’s availability, performance, functionality, or security.
Some of them are as follows:
Data centers that house servers capable of running the application may be destroyed by natural calamities such as hurricanes. Furthermore, internet connections may go down, causing the application to be inactive and suffer the consequences of application availability.
Cyber threats like distributed denial-of-service cyber-attacks may congest the application’s servers or leak into its foundation, interfere with availability, and obstruct functionality.
Internet infrastructure or content delivery network problems may trigger bandwidth issues that impact the application’s performance.
The lack of necessary hardware or software might halt the application.
These are only a few possibilities that can affect a web-based software application’s availability, functionality, performance, security, or operation. The listed risks sometimes happen because the SaaS provider may not have reasonable control over them. This knowledge must be part of a force majeure provision in a B2B SaaS agreement.
Custom Clauses Offer Stronger Protection
However, in some cases, force majeure clauses may not cover all unexpected events that affect a web-based software application’s availability, performance, security, or operation. This lack of clarity can put SaaS providers at risk.
To better understand the impact of unexpected events on a program, it is important to consider how these accidents affect management and control aspects. This includes administrative, physical, and technical controls. It’s wise to customize the stipulation, since courts interpret them very strictly.
For instance, in the Palm Springs Mile Associates, Ltd. v. Kirkland case, the court ruled that the contractual relief stipulation has limited applications and cannot be used to escape obligations.
Similarly, in Veriet Real Estate, LP v. Fitness Intl, the court noted that the wording of the clause determines when parties can disregard their contractual obligations.
It’s essential to remember that a force majeure clause only applies when an external disruption prevents someone from fulfilling a contract. If an abrupt incident makes software tools or services unprofitable or inconvenient, that defense may not hold up in court for a breach of contract.
In Magma Glob v. NHT SP, the court highlighted that a transaction usually covered by a contract can become unprofitable, while in another situation, the contract might become impossible to perform.
Ask the Right Questions Before You Sign
The central idea is that every B2B SaaS agreement should lessen the SaaS provider’s liability risk for delays or failures in meeting contractual obligations. This protection should apply to unexpected events that are beyond the provider’s reasonable control or anticipation. In addition, the clause should also specify the rights and responsibilities of both parties to create clear expectations, thereby minimizing the risk of potential conflicts.
When creating a force majeure clause, SaaS providers should consider the following questions:
How would natural disasters like hurricanes, tornadoes, floods, or earthquakes affect the application’s availability, functionality, performance, security, or operation?
How would a long-term power outage or loss of internet impact the application’s availability, functionality, performance, security, or operation?
Is there a disaster recovery or business continuity plan in place? This plan should outline how to back up data, switch to backup systems, balance loads, and restore the application’s operation.
If a key vendor that supports the application faces service disruptions or component shortages, how would that affect the application’s availability, functionality, performance, security, or operation?
Is there a backup plan that identifies alternative third-party services or components if the current ones become limited or unavailable?
If laws or regulations change and restrict contract performance, what rights and obligations should be outlined to clarify expectations?
Addressing these questions can help SaaS providers better define their rights and responsibilities during a force majeure event and reduce the risk of disputes. Bear in mind that this information is for general purposes only and is not legal advice for any specific situation. Laws and regulations can change, and this content may not be current. It’s best to consult your attorney for the legal guidance you need.
Conclusion
Force majeure clauses are more than legal boilerplate. They safeguard B2B SaaS companies that are navigating a landscape of complex, interdependent systems and unpredictable disruptions. Put simply, without this kind of clause, you could end up paying the price for problems you didn’t cause. By carefully tailoring this stipulation to reflect operational realities and legal precedent, SaaS companies can define clear expectations, allocate risk fairly, and reduce the chance of future disputes. As the industry becomes increasingly reliant on third-party infrastructure and global data flows, a well-crafted force majeure provision is not just prudent, it’s foundational.
