Have you ever signed up for a software subscription, only to later realize the fine print included auto-renewal, unclear data ownership clauses, or unexpected price escalations? 

Any business contract is a commitment that shapes how efficiently the business or the vendor operates, how the business budgets, and how compliant the vendor is. But they also often hide complex clauses and potential pitfalls that can cost you dearly if overlooked.

That's why having a thorough contract review checklist is a non-negotiable step in your procurement process. Crafting clear and perfect contracts is not only a legal necessity but a crucial way to protect your business from unnecessary risks, ensure compliance, and maximize the value of every SaaS investment.

Here's everything you need to know to create a contract review checklist that works for your organization.

‍

What is Contract Review?

Contract review is the process of meticulously evaluating an agreement to ensure it meets your organization's needs, mitigates risks, and adheres to regulatory standards. This includes understanding the implications of every clause and how they can affect your operations and budget.

In the context of SaaS vendor contracts, the process involves looking beyond basic terms to analyze-

• Renewal clauses could lead to automatic extensions at unfavourable rates.
• Data ownership terms are used to confirm that your organization retains control over its information.
• Usage limitations that might disrupt operations if exceeded.
• Promised uptime and support to ensure smooth continuity of operations.
• Termination conditions to ensure you can exit the contract without excessive penalties.

A proper contract review transforms these documents from potential liabilities into tools that work for your business. It empowers teams to make informed procurement decisions, avoid unnecessary spending, and foster strong vendor relationships.

“As cost optimization becomes a priority, Spendflo is becoming the go-to, tailormade solution for buying, managing, securing, and saving on SaaS from one place,” Siddharth Sridharan, co-founder, and CEO, Spendflo.

At the same time, a review checklist will help you avoid adding unnecessary clauses in the contract to protect yourself. This is to say that just because you can add more clauses to safeguard your interests doesn't mean you have to; a contract review checklist will help manage that.

‍

Why is Contract Review Important?

A poorly reviewed SaaS contract can lead to significant financial and operational setbacks. A robust digital tool for your procurement process makes it easy for you to review contracts, as it automatically scrutinizes key clauses against your SaaS requirements.

Here's why taking the time to review the entire agreement is crucial:

1. Avoid Financial Pitfalls

If your SaaS contract includes costs you may have overlooked, they can quickly add up. These may include overage fees for exceeding user limits, charges for additional storage, or penalties for early termination. Without a detailed review, you could be blindsided by these expenses.

For instance, a CRM vendor might charge significantly higher fees for scaling up mid-contract. So, what you need to do is review the contract terms to ensure you can budget for growth without surprises.

‍

2. Ensure Compliance

Regulatory requirements vary depending on your industry and geographic location. Compliance with regulations like GDPR or HIPAA is important not just for you but for every SaaS vendor you work with. One misstep on their part, and you're the one paying fines or dealing with reputational fallout.

A contract review helps you verify compliance, protecting your business from legal issues and financial repercussions. Are they encrypting sensitive data? How do they handle breaches? If your vendor can't meet your compliance needs, it's a red flag you can't afford to ignore.

‍

3. Mitigate Operational Risks

Downtime can kill your productivity. Poorly defined SLAs (Service Level Agreements) can lead to downtime or inadequate support, disrupting business operations. 

Here's where you need to get specific: how much uptime are they guaranteeing? Is it 99.9%, or are they giving themselves wiggle room? How fast will their support team respond when you encounter an issue? Do you get service credits if they fall short? A robust contract review ensures you're not left scrambling when the inevitable tech hiccup occurs.

A robust review locks in these details and ensures your vendor's performance expectations are crystal clear, backed by enforceable penalties if unmet.

‍

4. Negotiate Better Terms

When your vendor designs the contract, it might have clauses that only protect their interests, not yours. Having a comprehensive contract review checklist handy will provide leverage for negotiating terms that align with your strategic goals. 

So, if you find a vague or one-sided clause, you can push for revisions and clarity that protect your interests. At the end of the day, a good contract does not simply focus on protecting one party but sets a partnership where both parties can thrive.

‍

5. Prevent Vendor Lock-In

Vendor lock-in occurs when contracts make it difficult to switch providers, often due to excessive penalties or proprietary technology. This can be a nightmare if not tackled promptly. 

A thorough review helps you avoid these traps early. Look for clauses that give you the flexibility to leave when you need to without taking a financial hit or losing access to critical data. 

‍

The Perfect Contract Review Checklist

Here's a quick overview of the essential elements that you need to include in your contract review checklist to maximize the value of your vendor partnership-

• Parties involved

Verify the contracting parties involved, including their legal names (individuals or entities), addresses, and other relevant information. The details should be accurate to avoid any complications later.

‍

• Agreement dates

The next element of your SaaS contract is the agreed-upon start and end dates. These dates are important to manage tool usage and contract renewal dates.

‍

• Duties and obligations

This acts as the framework of the contract, dictating the responsibilities of both parties. For instance, this can include the vendor's duty to offer high-quality SaaS tools as per your business needs and the business's duty to adhere to the payment terms.

‍

• Terms and conditions

This section can outline the terms and conditions governing the contract, perhaps related to payment, contract renewal, termination, guaranteed uptime, support, and so on.

‍

• Payment terms

Payment terms will define how much you will pay to the vendor when you make the payment (monthly, quarterly, or yearly), how the payment will be made, and any penalty applicable in case of late payments. Clarify these terms during the contract review to save yourself from financial issues.

‍

• Subscription renewal

In the context of SaaS, many contracts include a clause to auto-renew the contract after the end date unless you provide a notice. While this clause can ensure uninterrupted service for your business, review it to make sure this is what you want. 

Because as it turns out, 9 out of 10 SaaS contracts are automatically renewed, according to a Common Paper survey.

So, consider reviewing key terms such as notice period, renewal period, and any changes in prices to exercise better control over the contract.

‍

• Confidentiality clauses

In contracts like these with SaaS vendors where you are dealing with sensitive data, the confidentiality clause warrants a review.

How will the vendor protect your sensitive data? How much of the business information will be shared with the vendor? Who will have the access rights? What are the security and backup procedures followed by the vendor? Get answers to these questions while reviewing the contract.

‍

• Termination clauses

While the purpose of your contract review checklist is to foster clarity and stronger relations with your vendor, what happens if you face an issue and want to end the contract? Review the termination clauses to save yourself from unexpected penalties when you want to end the contract early, or there is a breach of contract from the vendor.

‍

How to Create a Contract Review Checklist

Crafting a solid contract review checklist will safeguard against hidden pitfalls and unanticipated challenges. A well-thought-out checklist simplifies the review process, ensures consistency, and keeps you focused on what matters most. 

You can also use contract review software or procurement tools like Spendflo to simplify contract review for your organization in this situation.

Here's how to build one that works:

1. Define your review objectives

Before diving in, ask yourself: what's the endgame with the contract review? Do you want to ensure compliance, negotiate better terms, or prepare for future scalability? 

Clarity on your goals ensures that your checklist focuses on the aspects that matter most to your business. For instance, if your objective is cost control, pay extra attention to fee structures and hidden costs.

‍

2. Break down key contract components

SaaS contracts are dense, but breaking them into manageable chunks makes it easy to prepare a complete checklist and review them properly. Your checklist should include the above critical elements- payment terms, renewal terms, parties involved, data privacy, compliance obligations, and so on.

Not just that, when creating your contract review checklist, don't forget to review if the contract accommodates your growing business needs. The contract should consider business scalability, focusing on contractual terms for scaling up or down when needed, pricing for additional users, storage, features, or compatibility with your existing tools.

‍

3. Pay attention to renewal and cancellation terms

Automatic renewals can be both a blessing and a curse. Your checklist should address the notification periods for cancellation or non-renewal, the flexibility you will have to renegotiate terms before renewal, and any price hikes post-renewal.

‍

4. Focus on the contract language to find hidden items

Don't miss this element in your contract review checklist – you need to read through the fine print and language carefully to find any clauses that might not be favorable to you.

This is where you can address critical clauses and request modifications to align the contract with your business requirements and secure a good partnership with the vendor. Not to mention, this section in the checklist will require you to audit the contract language by focusing on-

• Clarity: The language should be clear and simple, avoiding vague or complex terms.

‍

• Legal or technical terminology: The legal or technical terminology should be accurate and clearly understood, defined thoroughly if needed.

‍

• Consistency: Different terms and definitions should be consistent across the contract to avoid confusion.

‍

• Grammatical errors: When drafting your checklist for contract review, remember to look at spelling, punctuation, and grammatical mistakes to ensure clarity.

‍

• Formatting: The contract should be in an agreed-upon format.

‍

5. Collaborate across teams

A contract review isn't a solo endeavor. Loop in your legal, procurement, and IT teams to ensure nothing slips through the cracks. Each team brings a unique perspective—legal will focus on risks, IT will focus on integrations, and procurement will focus on cost efficiency.

‍

Conclusion

A well-executed contract review checklist is your secret weapon for navigating the complexities of SaaS agreements. 

Start focusing on critical areas like pricing, SLAs, data security, and termination terms; you can ensure every contract serves your organization's best interests.

Besides, a contract review checklist is not about avoiding mistakes; it's about proactively managing vendor relationships to maximize value and mitigate risks. With the right checklist in place, SaaS procurement transforms from a potential liability into a strategic advantage.

Still seems overwhelming? Not with the right SaaS procurement partner by your side! 

Enter Spendflo, a SaaS procurement platform to simplify procurement and optimize spend. The platform leverages the power of AI to streamline SaaS contract management, from negotiating contracts and managing documents to reviewing and finalizing clauses.

It will further sync all your upcoming renewals to Google Calendar and offer in-depth insights to make informed renewal decisions. 

Streamline procurement with Spendflo and book a free spend analysis today.

FAQs

1. What should a SaaS contract review checklist include?

It should cover payment terms, SLAs, renewal clauses, data security provisions, regulatory requirements, and termination clauses for a smooth partnership.

‍

2. How can I ensure compliance with industry regulations in SaaS contracts?

Verify that your vendor adheres to applicable regulations like GDPR or HIPAA. Also, review their data handling, encryption practices, and incident response plans.

‍

3. How to review a SaaS agreement?

To review a SaaS agreement, focus on key terms like pricing, SLAs, compliance, termination terms, and data ownership. Identify potential risks, clarify vague clauses, and involve legal, IT, and procurement teams to ensure alignment with business needs.

‍