9. Contract Terms to Look for

As promised last week, I’ll share some contract terms that I think need attention.  That said, I always worked with an attorney on contracts.  In my experience only attorneys will debate the difference between a permanent license and a perpetual license.  I used to tell attorneys I always skipped the sections THAT WERE IN ALL CAPS because I knew it was legalese for them!  Several years ago a smart attorney convinced me to read those sections as well.   It’s funny, but I have had multiple vendors be very surprised by the fact that I read contracts before signing them.  My belief is that someone from the business needs to read them in addition to legal and procurement.  Since I sign, I read first.

As I said in an earlier blog, I am not an attorney and this is not legal advice.  These are some of the items I look for in a software contract.

Free test copy – My rationale is that I should pay for what I productively use.  Having a test copy helps ensure I am successful with the software and therefore I am a good reference.

Permanent license – Unless, of course, I am acquiring SAAS (Software As A Service)

Cap on Future Maintenance Increases – This one is not easy, but it is almost always possible to get a cap for a certain period of time.

Changed Functionality – This one clause saved hundreds of thousands of dollars several years after the software was in production.  The vendor removed some functionality from our product, combined it with new functionality, and wanted us to license it to use it.  We were protected by a clause that said that if something we had is removed or changed and then offered for a fee – we retain the right to continue to use it free.

Basis of contract price – You need to think carefully about this – for the present and the future – of both the company – and technology.  Some examples are:
• Concurrent user
• Named user
• Processor-based
• Business unit based
• Company sales volume
• Transaction count
• Etc.
There is no single right answer.

DRP / DCP / BCP – license key for testing and real use in case of a disaster should be free and obtainable 7x24.

Indemnification – helps cover you if some part of the software is found to infringe on another companies intellectual property.

Time to cure breach – needs to be mutual and sufficient.

Does the software work for your purpose – hard to pin down companies but worth the effort.

How long to upgrade or stay on previous OS versions – This  is a maintenance issue and you want as long as possible – at least 18 months and preferably longer.

Reference calls can have value – especially of they would like to use your company name in their marketing literature.

Audit rights – It is better to have controls built into the software than to have to deal with an audit.  It makes it simple to be in compliance and avoids the disruption an audit can cause.

Service Levels – This is a key for maintenance.  You need to think carefully about how you will deal with bugs or downtime.  The criticality of the software to your business should be your guide.  EDI software is probably going to be more key to your business than Data Warehouse software.   You need a clear escalation process for being down.

Software Escrow – If the software is in a language you could support, this is a realistic option should they go bankrupt.

And to repeat an earlier point – READ BEFORE YOU SIGN!