Regardless of the dollar value or complexity of your software acquisition, following are a few general tips and suggestions to keep in mind when negotiating a software license agreement.
Do your homework regarding the software you are about to license
Have you chosen the right software package for your needs, and will it run in your environment? Have you done any testing with a demo version of the software? Will you have any system or database integration issues to overcome? If you have any uncertainty whatsoever about the suitability or useability of the software package, among other things, consider incorporating an appropriate buy-back provision into your deal.
Pay attention to license terms and conditions
Businesses of all sizes and types routinely enter into software license agreements without legal counsel review, and without negotiation of any term other than price. After the painstaking process of selecting the appropriate vendor, there is often an overwhelming desire to get the contracts signed as quickly as possible. Why worry? The vendor's sales person has assured you that the lengthy preprinted forms have been signed "as is" by businesses much larger and more sophisticated than yours.
Don't fall into this trap. You must carefully review the terms of the license agreement to make certain that it accurately reflects your understanding of the transaction and is consistent with your intended use of the software. For example, does the agreement permit use by your affiliates? Will you be required to pay another license fee if you open a new facility or otherwise expand your operations? What happens if the vendor goes out of business or simply stops supporting the version of software you licensed? These are just a few of the issues you need to address.
Use seasoned technology legal counsel
For any substantial software acquisition, it is wise to involve a seasoned technology attorney. If you will use legal counsel, whether in-house or outside counsel, involve that person early in your acquisition process. Don't spend six months selecting a vendor and then expect the license agreement to be finalized in less than a week. This approach often results in the loss of leverage and settlement for less than favorable terms. It takes time to negotiate and win favorable terms and conditions for any deal, and software deals are no exception. And the more complicated the deal, the longer it takes.
Work as a team
It is difficult, if not impossible, to neatly categorize a software licensing issue as legal, technical or business related. For example, acceptance terms have legal, technical and business implications. In order to make certain that all objectives are satisfied, your business and technical staff should work as a team with your legal counsel in approaching these issues.
Agree on the contract negotiation process
One of the first steps of the contracting process is to identify who will be involved in negotiations and how the process will be handled. For example, does the vendor object to your marking up of its form of agreement? Will you work from your own standard agreements? Battles over who owns the documents can often result in lengthy delays.
Get agreement from your vendor as to the negotiation ground rules. Who from each side will participate in negotiations? Who form each side will have decision making authority, and will they be present during all negotiation sessions? Set realistic deadlines for your negotiation process, and try to adhere to them. And, yes, do use conference calls and face-to-face meetings as part of your negotiation process. They are far more intimate than sterile e-mail exchanges, and they can help you progress through the most difficult issues affecting your deal.
Get it in writing
Most software license agreements contain what is referred to as an "integration clause" The following is typical:
"This Agreement constitutes the entire agreement of the parties and supersedes any and all prior and contemporaneous representations, proposals and understandings, whether oral or written."
Even though you may trust your vendor, be sure to commit all license and related terms to writing. License structure, license fees, terms governing maintenance and support, renewal and upgrade options, warranties, indemnifications. Everything! Otherwise, the terms you may have thought were part of your deal may not be enforceable down the road.
Consider numerous possible outcomes
We'd all like to report to our managers that our big software project went smoothly, implementation was a breeze, wire-ups to databases were child's play, we finished ahead of schedule and under budget, and the software performs better than anticipated. But rarely do we have this opportunity. For any software project there are surprises, cost overruns, delays, compromises, and disappointments. This is reality.
Without necessarily standing out as a gloomy pessimist among your project team, step back and consider what might go wrong with your software project. You need to consider and ask the "what-ifs". What if it doesn't work? What if the cost of implementation is twice as much as the estimate (or five times as much)? What if we run into integration issues? What if we run into database issues?
All too often a project team is happy to get basic terms of a deal established and then rush into the work phase of a project. Everyone assumes things will go smoothly, and if they don't, the assumption is that everyone (vendor included) will work through the issues in a friendly and cooperative fashion. "We can't plan for everything, right? So, let's get started."
This is another trap you should avoid. Think of as many contingencies as you can, address them in appropriate ways, get your vendor's buy-in, and then commit the mutual understandings to writing in your License Agreement and any related services agreements and Statements of Work. Who shall be accountable for what, and what happens if they drop the ball? Anticipating and addressing contingencies in advance is the single best way to reduce project risk.
Consider the future
The agreement you sign today needs to address future changes in your business, as well as future changes in the vendor's business. For example, the agreement should include pricing for additional licenses if the software is licensed on a per-user, -seat or -server basis. Other issues include limitations on increases in the maintenance fees, changes in technology, and assignment in the event of a sale of your business.
Are you planning an acquisition? Is "downstream" use of the software for the acquired business permitted and without additional fees? Is it possible that you may be acquired? Is "upstream" use of the software by the acquiring business permitted without additional fees, such that your system might be considered an asset by the acquiring business?
Keep signed originals of your agreements
While this may seem obvious, organizations are frequently unable to locate a signed copy of the agreement when the relationship begins to sour. Time has faded memories and no one can remember if the vendor ever sent one back. If you find yourself needing to look at the signed agreement, your vendor might not be the best person to call with your request.
© 2008 All rights reserved. Olive Consulting Group LLC / Nuckles Law Firm