Value-added reseller (VAR) agreements

Our VAR agreement recognises four kinds of added value, plus exclusive plain resale:

• Integration. The VAR builds your software into one combined product with its own hardware, software or services. A Midrand telematics company, for example, integrates a Pretoria developer’s fleet-planning software with its own vehicle-tracking platform.
• Hardware bundling. The VAR installs your software on, or sells it with, its own hardware, such as rugged in-vehicle tablets.
• Added services. The VAR sells its own services with your software, such as configuration. The services can come with every sale or be optional.
• Hosting. The VAR runs your software on servers it controls and gives its clients the use of it as a service.
• Nothing added, on an exclusive appointment. A partner that resells your software exactly as supplied, but exclusively, also signs a VAR agreement. It is then called an authorised reseller, not an authorised value-added reseller.

In every model the VAR buys from you and resells in its own name, for its own account. By default each customer licenses your software directly from you, on your own customer terms. The VAR gives first-line support: it is the customer’s first point of contact for help.

A partner that sells your platform under its own brand, builds your software into its own product for a royalty, or distributes your hosted software through sub-resellers needs a different agreement, exclusive or not. Our guide to which channel agreement you need sorts these.

We draft the VAR agreement for either side: the vendor appointing a VAR, or the VAR signing up. Some terms differ between the version we draft for the vendor and the version we draft for the VAR, and this page says where.

Our plain reseller agreement bars the reseller from supplying any service with your product except first-line support, and no side agreement can add one. So once a reseller wants to configure, integrate, bundle or host your software, or wants exclusivity, the deal moves to the VAR agreement. That is our drafting choice, not a rule of law. An exclusive plain reseller is lawful, but the VAR agreement already carries the targets and competition safeguards that exclusivity needs.

A Cape Town consultancy that only resells your accounting software signs a reseller agreement. If it starts selling its own configuration service with each licence, it needs a VAR agreement.

First-line support is always the VAR’s job under our agreement. It covers installation support, logging and first diagnosis of faults, and all support of the VAR’s own hardware, software and services. The VAR may not repair or modify your software itself.

Second-line support from the vendor is agreed deal by deal. Where it applies, the vendor helps diagnose the faults the VAR escalates, provides a correction or workaround for each confirmed fault, and supplies maintenance releases. In our agreement that second line includes the fix itself, which some agreements call third-line support. A response means a skilled person has started work and told the VAR. The response times are:

• software, or a material part of it, unusable with no workaround: within 1 hour;
• a material function seriously impaired: within 4 business hours;
• a function impaired, with a workaround: within 1 business day;
• minor defects and questions: within 2 business days.

The vendor need not support faults caused by the VAR’s own components, by changes it did not make or approve, by use outside the documentation, or by versions older than the current and previous one. After the agreement ends, it keeps giving second-line support for up to 6 months, for a stated monthly fee, so that the VAR can look after existing customers. If the VAR falls behind on payment, the vendor may suspend new orders and second-line support after notice, but never the customers’ use of software already supplied.

If you are the vendor, you may limit urgent cover to business hours. If you are the VAR, ask for second-line support and resist longer response times. Without it, the VAR carries the support load alone, though the vendor still owes its warranty fixes and maintenance releases.

The line shows up in four places:

• Warranty. You warrant that each copy or subscription matches its documentation during the warranty period. The warranty does not cover faults caused by the VAR’s components, by combining your software with things you did not supply or approve, or by changes others made.
• Indemnities. An indemnity is a promise to cover the other side’s loss from a claim by someone else. You cover claims that your software infringes another person’s intellectual property, including claims by the VAR’s customers. The VAR covers claims that its own components infringe or caused harm, that the combined product (other than your unchanged software) caused loss, or that arise from promises it made beyond your customer terms.
• The VAR’s own promises. The VAR must not promise a customer more than your customer terms give, such as a faster response time. If it does, it alone is liable for that promise. Services it sells with your software are its own, supplied at its own risk.
• Caps. Each side’s total liability is capped at the greater of a stated amount, set per deal, and the fees paid in the 12 months before the claim. Claims about confidentiality, personal information, infringement and indemnities, and, in the version we draft for the vendor, gross negligence, carry a higher cap of three times that.

The side we draft for matters. In the version we draft for the VAR, your intellectual property indemnity sits outside every cap. In the version we draft for you as vendor, it sits inside the higher cap.

None of this binds the end customer. Under the Consumer Protection Act 68 of 2008, if unsafe or defective goods harm a consumer, for example by injury or damage to property, the producer, importer, distributor and retailer in the chain that supplied the consumer can be liable without proof of negligence. Where more than one of them is liable, the consumer may recover the full amount from any one of them. That is subject to the defences in section 61(4), such as a defect that did not exist when that business supplied the goods, or a claim brought more than three years later. Our agreement splits that risk between you and the VAR and requires each of you to carry insurance, but the split cannot reduce what an injured customer may claim. Injury caused by software built into another product is covered on our OEM agreements page.

Exclusive appointments come in different strengths: see exclusive, sole and non-exclusive appointments on our comparison page. Our VAR agreement uses the sole form. You may not appoint another reseller in the territory. You may still market, license and support your software there yourself, and appoint resellers outside it.

The excluded accounts are a fixed list of your existing direct customers, by name, frozen at signature. They are not a category such as “all government departments”, and not a list you can add to later. A Pretoria vendor that already supplies a large logistics group directly names that group, and the VAR leaves it alone.

Your direct sales have a competition consequence. If you sell direct in the VAR’s territory to customers beyond the excluded accounts, we treat you and the VAR as competitors. The Competition Act 89 of 1998 prohibits agreements between competitors that divide markets by allocating customers or territories. So our VAR agreement then adds rules on what business information the two of you may share. It also leaves out the staff non-solicitation (a promise not to poach each other’s staff) and the restraint (the VAR’s promise not to compete with your business for a period after the agreement ends). How the Act treats exclusivity and territories is on our competition law page.

If you are the VAR and want a bar on the vendor’s direct sales, ask for it in the version of the agreement drafted for you. If you are the vendor, name your direct customers before you sign, so the exclusivity does not reach them.

The commitment is set per deal, as an amount of fees per measurement period, such as R300 000 a quarter. An exclusive appointment needs it. Before each renewal the two sides review the commitment in good faith.

After a missed period you have 60 days to act, and your notice takes effect 30 days after you give it. The remedies are:

• Loss of exclusivity. The appointment continues, non-exclusive, and you may appoint other resellers in the territory. In the version we draft for you, the VAR’s promise not to resell competing products ends with the exclusivity. The restraint, the VAR’s promise not to compete with your business for a period after the agreement ends, also falls away if the VAR is non-exclusive when the agreement ends.
• Shortfall fees. If the agreement states them, higher fees per licence or user apply from the next period. They are a price for future supply, not a payment for the miss.
• Ending the agreement. Only after two consecutive missed periods.

A shortfall is excused to the extent that it results from force majeure (events beyond either side’s control, such as long load-shedding), from your own breach, or from your software being unavailable or not working as documented.

If you are the VAR, ask for a low first period while you build the business: the commitment and the period are set per deal. You may also ask to drop termination after two misses. When we draft for the vendor, we keep it, as the price of the exclusivity and not as a penalty. Targets work differently for distributors and white-label partners: see our reseller and distribution and white-label pages.

The VAR must make sure each customer accepts the right terms before or on delivery. It keeps a record of the version, date and method of acceptance for 3 years after the licence ends, and it may never change your terms. It must tell you within 5 business days of any breach of them it learns about. The terms depend on the product:

• Software the customer installs: your end-user licence agreement, or an approved sublicence. You may not unreasonably refuse a sublicence. The VAR must enforce it and may not grant more than its own licence from you.
• Software you host: your terms of service for software as a service (SaaS, software customers use over the internet), with your acceptable use policy, service level agreement and support policy. No sublicence.
• Software the VAR hosts: the VAR’s own terms for its hosted service, approved by you. They must protect you at least as well as your end-user licence and bind each customer to your acceptable use policy.

You may update your terms. A new version applies only to customer agreements concluded or renewed after 60 days’ notice to the VAR. Existing customers stay on the version they accepted until they renew.

The VAR’s own licence to copy your software is non-exclusive, even when its appointment is exclusive, and it covers only what the VAR needs to integrate or supply your software. Under the Copyright Act 98 of 1978, an exclusive licence must be in writing and signed. A non-exclusive licence granted by contract can be withdrawn only as the contract allows. A sublicence the licence permits counts as done with your licence.

Plain resellers and OEMs (original equipment manufacturers, which build your software into their own products) handle customer terms differently: see our reseller agreements and OEM agreements pages.

The hosted model licenses the VAR to install and operate your software only for its hosted service. It must secure the hosting as a skilled and careful operator of a similar service would. A Johannesburg managed-service provider that runs a Pretoria vendor’s HR software on its own cloud servers for client companies is a typical case.

Personal information then moves along a chain. The Protection of Personal Information Act 4 of 2013 (POPIA) calls the business that decides why and how personal information is processed the responsible party. A business that processes it for that party under a contract is an operator, and an operator’s own operator is often called a sub-operator. Our VAR agreement uses a separate data processing agreement for each role that applies, signed before the processing starts:

• The VAR hosts. Each client is the responsible party, and the VAR processes for it under its own agreement with that client. If you support the VAR’s systems, for example by remote access, you process for the VAR and must report a data incident to it within 24 hours.
• You host and the VAR supports. You process for each client under your terms of service, and the VAR, in giving support, is your sub-operator. It must report a data incident to you within 24 hours.

The 24 hours is a contract period for the extra link in the chain, not a legal deadline. Each data processing agreement ends with the VAR agreement and gives no separate exit. Each side also answers for securing the personal information it handles for itself, as section 19 of POPIA requires. Hosting outside South Africa raises POPIA’s rules on sending personal information abroad, in section 72. Roles, breach notices and offshore hosting are covered in full on our POPIA in software channel deals page.

If you are the vendor, read the VAR’s hosted-service terms before you approve them. If you are the VAR, plan for your own client data agreements: our agreement makes you sign one before you process any client’s personal information.

The Act does not apply where the buyer is a company or other legal entity whose asset value or annual turnover is R2 million or more at the time. The Minister set that threshold in Government Notice 294 of 2011. Below it, the VAR is a consumer of what you supply to it. Our agreement then adds the Act’s protections, such as an itemised breakdown of charges and a prominent notice of terms that limit your liability or shift risk to the VAR.

The size test applies only to companies and other legal entities. A sole proprietor is not measured by it, though it buys for its business. An individual VAR on a fixed term gets the Act’s fixed-term protections, and the right to end early for convenience is then the VAR’s alone. See individual and sole-proprietor partners.

Size does not decide whether franchise law applies. We check every VAR deal for the signs of a franchise, large or small: see when a partner deal becomes a franchise.

If you are the vendor, ask for the figures before you sign. If you are a small VAR, expect the consumer protections to appear in the agreement.

Each charge is the price of that side’s right to leave early, set per deal. We never use a standard figure. A nil charge is a deliberate choice, recorded in the agreement. The side that ends pays within 30 days of the other’s invoice, and the notice takes effect whether or not it has paid. If you as vendor end early, you also refund fees paid in advance for software not yet supplied.

When the agreement ends, for any reason:

• Each customer’s licence or subscription continues on its terms. Renewals are made with you or a reseller you appoint.
• The VAR may keep one copy of your software to support existing customers.
• If the agreement has a sell-off period (we start from 90 days), the VAR may finish supplying what it held or had committed to. That does not apply if you cancelled for its breach.
• In the last 90 days of the term, the VAR may not order more than its projected demand. It cannot stockpile before the end.
• Where second-line support was agreed, you keep supporting the VAR for up to 6 months, for a stated fee.

If you are the VAR and have invested in your product, price the vendor’s charge to reflect that investment. If you are the vendor, expect the VAR to ask for support after the end and, for business-critical software, for source code escrow: an independent agent holds your source code and releases it to the VAR only on the events our escrow agreement lists, such as your liquidation, or a support failure you do not fix within 20 business days after notice. The full list is on our who keeps the customers page, with the other exit questions.