Software Contracts 101: What To Look For - InformationWeek

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Comments
Software Contracts 101: What To Look For
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bquillen280
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bquillen280,
 User Rank: Strategist
1/24/2014 | 10:21:08 AM
Re: In the back office, lots of software, plus lawyers
Thank you for your comment. Yes, usage, whether via number of transactions or number of accounts, is critical, particularly under a service bureau arrangement.  That is why it is vital to monitor your firm's activity, especially as you come close to renewal with a service bureau operator.  Trying to forecast transaction or account growth over even the next three years can be tricky, depending uon whether the firm plans to grow organically or through acquisition.  Of course, that is why some companies operate their core applications in-house as that gives them more control over utilization.

Then, when or if it comes to de-conversion from one service bureau operator and converting to another, that can be a challenge.  The company really needs to have its ducks lined up, because the vendor from which you may be converting will try to extract every last farthing simply to provide conversion files to the new processor. That is why I recommend a company include as part of its initial contract a specific amount or percentage for de-conversion costs in the future.   Bennett

 
cbabcock
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cbabcock,
 User Rank: Strategist
1/23/2014 | 6:39:02 PM
In the back office, lots of software, plus lawyers
At one time, Oracle took an aggressive line with customers and conducted a customer audit as the contract approached renewal. If the vendor found in such an audit that usage had been higher than the contract allowed, does the company understand how the vendor arrived at such a conclusion. Does it have its own monitoring tools to challenge the conclusion, if necessary? If it does challenge additional license charges, does that run the risk of running up massive lawyers' bills? Even if there is no case in court, you'd still have to carefully document your information and construct a counter to the vendor's claim, wouldn't you? 
bquillen280
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bquillen280,
 User Rank: Strategist
1/21/2014 | 7:40:07 PM
Re: Do CIOs really take software contracts too casually?
I understand your question on the price escalator. On the face of it, it might seem unnecessary.  However, bear in mind that the vendor software support is for a major application or a set of core applications.  And, the vendor will usually require 5-year terms.  After all, the vendor is supporting a critical application for your company and you want to be sure that scheduled maintenance, application upgrades and regulatory changes are promptly and accurately tested and deployed.  That is why it is so important to negotiate all of the software features your company requires: near term and expected in the future, and the level of service (SLAs) you require, with associated penalties if not met.  Bennett
Lorna Garey
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Lorna Garey,
 User Rank: Author
1/21/2014 | 6:48:12 PM
Re: Do CIOs really take software contracts too casually?
Is a "price escalator" -- an automatic yearly increase even with a contract in place -- common? That seems like a disincentive to sign on for any length of time. Why not go year to year, so you can shop around?
bquillen280
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bquillen280,
 User Rank: Strategist
1/21/2014 | 2:11:35 PM
Re: Do CIOs really take software contracts too casually?
I see that I did not pay sufficient detail to my typing: it should have been "insufficient"  Bennett
bquillen280
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bquillen280,
 User Rank: Strategist
1/21/2014 | 2:09:59 PM
Re: Do CIOs really take software contracts too casually?
It is not so much that CIOs (and auditors and CFOs) take software contracts casually, it is more nsufficient attention to the details.  By proper attention and asking detailed questions, a CIO can often extract more beneficial terms, improved SLAs, etc.  Bennett
David F. Carr
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David F. Carr,
 User Rank: Author
1/21/2014 | 1:52:44 PM
Do CIOs really take software contracts too casually?
How common is it that CIOs (and others with the authority to sign software contracts) take them too casually? Who really needs to hear this advice?
bquillen280
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bquillen280,
 User Rank: Strategist
1/21/2014 | 1:36:36 PM
Re: Size Matters
You raise a good point.  Sometimes you need to look at what the overall strategy is of the vendor software firm.  If yur company is medium-sized market, you can leverage that position, particularly if the vendor is seeking to grow that share of market.  One can offer to be a "poster child" for a vendor if the contract is favorable and the conversion goes well.   Bennett
bquillen280
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50%
bquillen280,
 User Rank: Strategist
1/21/2014 | 1:32:45 PM
Re: If contracts don't get you, audits will
Absolutely agree! You have given me an idea for a future article on I/T audits.  I have had some auditors and examiners who actually knew their business and were helpful.  Then again, I have had federal examiners (not the OCC) who did not have a clue.  Bennett
TerryB
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TerryB,
 User Rank: Ninja
1/21/2014 | 1:11:21 PM
Size Matters
Absolutely nothing wrong with this advice but you may have trouble executing it unless you have some serious clout. Negotiating with Oracle as GM and doing so as Bob's Auto Supplies are two entirely different things.

I'm still laughing about a Corp purchasing guy we had a few years ago who was trying to consolidate our cell usage across several business units in North America. We decided on AT&T based on coverage, cost, etc. But when came time to sign on dotted line, he decided he wanted AT&T to change some of it's terms and conditions. Anyone care to guess how far that went and who won?
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