Most clients believe they have an airtight software agreement and their liability is limited to the contract value. As a general matter they are right, but there are exceptions. One of the biggest is fraud claims.
Fraud Claims. Fraud claims are based on some form of misrepresentation. Under strong legal theories, fraud damages should not be allowed when there is an underlying contract — but plaintiffs make these claims to get around contractual limitations on liability.
SAP learned about this the hard way. They faced a fraud claim for over $500 million arising from a $30 million software deal with Waste Management — more than 10x the contract value. Even though SAP negotiated their contract well and had it reviewed by their lawyers, they were facing a claim 10x the contract value.
Q: What can a company do to avoid these claims?
1) Get Involved Early in Customer Problems. Have someone in senior management work closely with the people on the ground to ensure issues get worked out.
2) Use Your Best People. These disputes need custom solutions and out-of-the-box thinking. Not the time for junior staff.
If senior leadership at SAP had gotten involved earlier, the case could have been avoided and the customer relationship rescued. Your software agreement can’t protect you from every claim — take care of customer problems early with your best people.
For the foundational distinction that drives every software-contract liability dispute, see SaaS Indemnity vs. Breach of Contract: What’s the Difference?