Escrow vs. Alternative Risk Mitigation Strategies

Why SaaS Escrow, Software Escrow, and Code Escrow Often Outperform Other Protection Methods

In technology transactions—especially SaaS escrow, software escrow, code escrow, and technology escrow agreements—attorneys are responsible for ensuring their clients have the right protections in place if a critical technology vendor fails to perform.

While there are multiple risk mitigation strategies available, few provide the operational continuity that escrow delivers. Understanding the differences is key to advising clients effectively.

Alternative Risk Mitigation Strategies

Contractual Commitments

What It Is:

• Adding obligations like support, uptime guarantees, and continuity provisions into the license or SaaS subscription agreement.
  

Advantages:

• Low cost.
  
• Provides contractual leverage.
  

Limitations:

• No operational continuity — These provisions rarely provide access to the software or source code.
  
• Enforcement is slow and impractical in emergencies.
  
  

Service Level Agreements (SLAs)

What It Is:

• Setting defined uptime targets, maintenance response times, and service performance guarantees.
  

Advantages:

• Creates measurable obligations for the technology provider.
  

Limitations:

• Does not keep the system running if the provider fails.
  
• Typical remedy is limited to service credits, not continued operations.
  

Insurance

What It Is:

• Coverage such as professional liability, cyber insurance, or business interruption policies.
  

Advantages:

• May help recover certain financial losses.
  

Limitations:

• No SaaS continuity — Insurance does not provide the software, code, or hosting environment needed to maintain service.
  
• Policy exclusions and disputes are common.
  

Third-Party Hosting or Replication

What It Is:

• Hosting mirrored environments or replicating systems with another provider.
  

Advantages:

• May allow partial operational continuity in specific configurations.
  

Limitations:

• Partial solution — May not include full source code, build processes, or technical documentation.
  
• Costly and often not synchronized with the latest live version.
  

Why Escrow Is Different

Technology Escrow Defined

A technology escrow arrangement—whether SaaS escrow, software escrow, or code escrow—ensures a neutral third-party escrow agent securely holds:

• Source code
  
• Build instructions
  
• Deployment files
  
• Documentation
  
• (In SaaS escrow) Current data or backup environments
  

If a release condition occurs (e.g., vendor bankruptcy, failure to support the application, or service outage), the beneficiary gains access to the deposited materials to continue operations.

Key Advantages of Escrow Over Alternatives

• Direct SaaS continuity — Escrow provides the actual software, source code, and technical materials to keep the application live.
  
• Current and complete deposits — Especially with Automated Escrow™, deposits stay aligned with production environments.
  
• Risk mitigation that works — Escrow addresses the root risk (loss of technology access), unlike alternatives that only offer compensation.
  
• Flexible, attorney-driven agreements — Escrow terms can be customized for each transaction.
  

Escrow vs. Alternatives – Comparison for Attorneys

Attorney Takeaway

For clients entering SaaS escrow, software escrow, code escrow, or technology escrow transactions, escrow is the only strategy that provides direct operational continuity.

Other tools—such as contract provisions, SLAs, and insurance—can complement escrow, but they do not supply the actual software or source code needed to maintain the application if the vendor fails.