Best Practices for Software Contract Negotiations
Even with the economy on the mend, IT will face continued budget reductions in 2010. Software spending accounts for up to 30% of the IT budget, but is often neglected in optimization efforts. Siwel Consulting has a team of experts in software contracts. The Siwel webinar, “Best Practices for Software Contract Negotiations” presents the tactics we have used successfully to reduce software costs in hundreds of negotiations.
This presentation covers:
- Strategy Development
- Maintenance – How much is too much?
- Terms & Conditions – The Good and the Bad
- Audit Risk Mitigation
Speaker: Barry Friedman – Siwel Consulting
Presentation Slides: To download a copy of the presentation slides, Webinar Presentation
Replay: To listen to a recording of the webinar, Click Here.
Learn more …
During this webinar, “Best Practices for Software Contract Negotiations,” we received many excellent questions. Below you will find a list of these questions and Siwel’s response. If you have any additional questions, please feel free to send an email toSAM@siwel.com. Thank you!
1. Are there any circumstances where it might be better to NOT include any audit language in the contract? In other words, delete all of the vendor’s standard audit language and rely only on true-up documentation.
We have found that there are sometimes special circumstances that may benefit from radical audit terms and alternatives. However, generally speaking, going into a negotiation with a realistic expectation will help you in the long run. You will likely go farther by submitting your preferred terms to an audit rather than expect the vendor
to concede to forgo an audit altogether. Stipulations such as allowing 3rd party data findings in an audit response and setting response timelines that cater to your company’s workflow will demonstrate that you are realistic and knowledgeable in vendor relations. This approach will garner you more respect and psychological leverage in dealing with the vendor reps than trying to obtain unrealistic terms.
2. How flexible are vendors on accepting T’s&C’s changes?
These vendors tend to be more flexible with contracts of significant value or companies of a significant size. When a vendor knows they stand to gain more from the client in the long run by being amiable in a negotiation (additional licenses or acquisition requirements) they will work harder to “be on your side” to gain your confidence and trust. Conceding to the T’s&C’s you request is one way to achieve this. Typically
with small contracts and companies, these vendors have nothing to lose, and will likely invest less time in a negotiation, using a “Take It or Leave It” approach.
3. The disposition of the Software Vendor at license termination is often overlooked and puts the vendor in the driver’s seat at renewal. What terms have you successfully negotiated to protect the licensee?
The ability to re-deploy, re-use or harvest licenses once the original owner no longer requires the license is the number one contract term that we have successfully negotiated to assist with the efficient management of “retired” licenses. Outside of the contract however, there are processes that can and should be instituted within the SAM model to track license termination in order to have a handle on this data and related contract value.
4. How can you negotiate T’s&C’s if the vendor provides them via a EULA on their website?
Just because a vendor posts contract terms on a website does not mean they are not negotiable. As part of your preparation for entering into the contract, contact the vendor with your proposed T’s&C’s. Depending on the value of the contract or the nature of the terms, the vendor may be willing to tailor the T’s&C’s to your needs.
5. How do you approach the one-person-contact with the vendor when having legal departments review the contracts?
Have your legal department funnel all questions and information through the designated vendor contact. If further discussions or meetings require additional participation have the designated contact chair the meetings and manage the communications.
6. Do you have any recommendations of how to best maintain contracts and track the details of these contracts? We have multiple large agreements and large quantities of individual EULA software.
Developing a database where you can input various details and stipulations for contracts is one approach. Designated personnel can refer to the database when deploying licenses or when a specific question arises. Siwel has developed a sophisticated database that supports an acquisition portal, so those contract terms and conditions are enforced “automatically” upon the license request. We have found this method to be 99.9% efficient and accurate.
7. What is the average maintenance cost as a percentage of software purchase cost we can expect today?
The average maintenance cost percentage for server licenses can range from 20-25%. For desktop software license, this number can jump to 29% of the license cost.
8. What methods can be used to negotiate T’s&C’s with big corporations such as Microsoft?
Typically, a good cop, bad cop approach can gain you leverage over your vendor. A successful approach used by many companies is to have a 3rd party play the bad cop, so at the end of the negotiation, that 3rd party walks away and the integrity of the vendor/customer relationship is left intact. Additionally, holding firm to your stance and insisting to move things up the ladder on the vendor side rather than accepting an unfavorable response should also prove beneficial. Also, have an alternative to the Vendor product would be helpful in a “walk away” tactic. However, being able and willing to actually walk away is key to making this angle work.
9. When discussing negotiating audit terms, specifically the amount of time to respond, you mentioned conducting a self-audit so that you can “cure” noncompliance. What does this mean?
A self audit is going through the process of obtaining your company’s Net Licensing Position (NLP) by matching your software contract license entitlements to the software license types actually deployed in the company. Auditors typically do not differentiate between license types (such as limited use, evaluation and software as part of bundles and suites) and therefore they have a distorted view of license usage data. If done correctly, a self audit will be able to classify these license types as show a true view of license usage and compliance and be an effective method in an audit refute.