Businesses of all shapes and sizes are investing more time and money than ever before in cloud computing services. Protecting assets against events such as a software-as-a-service (SaaS) provider’s bankruptcy is becoming a priority for reducing business risk.
If you’re like most business owners, you want to make sure that your tech assets, like the mission-critical applications or software on which your business depends, are safe and accessible should your cloud computing services provider be unwilling or unable to support and support the programs. One way to do this is with a tech escrow agreement.
What is Tech Escrow?
Tech escrow is when a neutral third-party holds data, source code, and any supporting tech materials in escrow for a developer and one or more clients. Include the terms of the release of this material in a document known as a tech escrow agreement.
List Release Events in a Tech Escrow Agreement
A release event is when something happens that interferes with the delivery of the contracted tech service. List possible events as part of a tech escrow agreement. All parties should sign this agreement when the licensing contract is drawn up.
If one of the listed events takes place, the licensee can take the necessary steps to ask for a release of the deposited materials. A tech escrow agreement is put into play only if one or more of the release events described in the agreement occur. Therefore, it is important that each potential event is clearly described.
The Most Critical Item
The release event list is arguably the most important part of the tech escrow agreement. It should include a thorough, detailed definition of each potential release event. Where applicable, each release event should also name a time frame for notifying all parties. For example, if an event occurs and the client (licensee) notes a disruption in service, the cloud computing services provider may have 60 days from notification to fix the issue before the release of deposited materials.
Start-up cloud computing services that pop up and then disappear seemingly overnight are all too common, and a good reason to sign a tech escrow agreement. This pattern may suggest that bankruptcy is the most common reason for the discontinuation of a tech service, but there are other types of events can trigger a release of items held in escrow.
While custom release events may be added to a standard tech escrow agreement to capture a unique relationship or customized application between parties, there are also several standard events commonly included in most agreements.
Operational Issues with Cloud Computing Services
Are you concerned that an application might stop operating or won’t be properly maintained? If so, ask for the inclusion of an operational or maintenance issue release event in the tech escrow agreement. License agreements between a developer and a client should contain detailed specifications and definitions of how a tech service will run and be maintained.
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If the specifications are not being met and this situation is identified as a release event in the tech escrow agreement, a deposit withdrawal can be triggered. Provide written notification of the issue to the cloud computing services firm or licensor, including details of the failure. This gives your tech service provider the opportunity to fix the problem within the specified time period. If they don’t, you may ask for a deposit withdrawal.
Insolvency and Liquidation
In some cases, tech services can’t be provided because of a third party, such as a creditor. If a cloud computing services business is liquidated to pay off creditors, it may be unable to continue to offer its services.
Insolvency, general assignment for the benefit of creditors, or the appointment of a receiver are all examples of common release events in tech escrow agreements.
Businesses sometimes end operations for reasons unrelated to financial problems, acquisitions or mergers. The owners might choose to retire or to pursue other business opportunities. In some tragic cases, key people pass away, and the business cannot continue without them. These situations should also be detailed in your tech escrow agreement.
Mergers, Acquisitions, and Strategic Partnerships
When a business becomes involved with another business through a strategic partnership or a merger/acquisition scenario, often some programs and services will continue and others will be cut.
If duplication of programs occur, one program may replace another. In this case, clients of the cloud computing services with the program being cut may exercise a deposit release, or acquire the option to sign an agreement for the new program.
When a Release Event Occurs
Should a release event occur, as the beneficiary or licensee you may request a deposit withdrawal from your tech escrow agent. Once your agent carries out a full internal review and verifies the materials list or inventory completed at the time of deposit, deposited materials (ie. source code) are retrieved and delivered.
To reduce the likelihood of communication problems in the event of a deposit release, it is critical that both the developer/licensor and the client/licensee understand and agree to the release events as laid out in the tech escrow agreement. The agreement should also include clear instructions about the steps to tell both parties that a request to release the deposit is in progress.
Gartner Research recently reported that by 2016, investment in cloud-based technology will account for the majority of IT spending. If your business is heavily invested in mission-critical SaaS, talk to your lawyer about creating a tech escrow agreement for each of your cloud computing services.