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Negotiating the Fine Print: A Powerful – And Necessary – Component of Your Software Asset Management Strategy

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The following blog post was contributed by Cynthia Farren, President of Cynthia Farren Consulting and author/editor of the Software Asset Management Blog, which provides advice for negotiating enterprise software license agreements and other Software Asset Management (SAM) topics.

Anyone working in the field of Software Asset Management is no doubt well-acquainted with strategies for minimizing license compliance risk and reducing spending on unnecessary software. Generally these strategies involve internal controls aimed at 1) establishment of internal processes to track and manage software purchases and deployments, and 2) implementation of technology that reconciles installed software and application usage with license entitlements to reveal license shortfalls and surpluses. There is one important area, however, that many organizations overlook with respect to their SAM initiatives: the power to influence the fine print found within the software license agreement.

Ensuring that a procurement contract meets the needs of your organization is key to controlling costs and risk. Software Publishers or Independent Software Vendors (ISVs) will often indicate that their contracts cannot be modified, but there are typically areas of flexibility and almost always workarounds. Make certain the following areas are clearly defined within the contract documentation at time of signing and ensure that these are terms your business is comfortable living with for the duration of the contract.

1) Who or what is included in the contract? By appropriately controlling the scope of a contract you can either ensure that all affiliated organizations have necessary access to the software without the need to enter into separate contracts later; or, in the case of an “enterprise wide” or global commitment, you can avoid licensing organizations that will not have a need for the software.fine print

  • Does the contract define what entities (only your organization, your organization and all subsidiaries, etc) are covered or not?
  • How does it apply to organizations you may acquire, merge, or divest with?
  • Does it have any “enterprise-wide” requirements on who or what is covered by the licenses purchased?

2) When does maintenance have to be included? The business case for maintenance can vary based upon a product’s roadmap and the organization’s plans for the technology. Understanding the contractual rules regarding maintenance helps the planning process and minimizes the potential risk a licensing shortfall.

  • Is it optional or required?
  • If optional, are there any restrictions on only covering a percentage of your licenses with maintenance?

3) Do your rights under the contract cross-reference any external documents that can change during the course of the contract? An external document that can change without an organization’s knowledge can create an unintentional licensing shortfall, resulting in potential risks and unexpected costs.

  • Make sure you are aware of what terms are in those external documents and require a restriction that controls what edition affects your contract.
  • If you do allow the external document to change within the course of your agreement require advance written notification of changes.

4) How are the following environments licensed? Non-production use of software frequently provides value to an organization but typically that value is more limited than in-production use. Negotiating more generous use cases for these non-production licenses can help you avoid additional costs and licensing risk.

  • Training
  • Demonstration
  • Test / Development / Staging

5) How is compliance measured and what rights and restrictions are involved (aka “right to audit”). ISVs have the right and responsibility to protect their Intellectual Property (IP). However, these compliance activities create a burden on your organization. By negotiating compliance terms in your contract an organization can limit the financial and resource burden for the future.

  • What compliance efforts can be used by the ISV?
  • How much lead time does the ISV have to provide you prior to compliance review?
  • How frequently can they require a compliance review?
  • Who pays for the compliance review?

6) Under what circumstances can the contract be terminated or re-negotiated? An appropriate “exit clause” can minimize the risk of unplanned growth/contraction and provide an organization with the means to control future costs and exposure.

  • What happens if you have a major shift in the size of the organization?
  • What happens if you choose to no longer use the technology?

These are some key samples of areas to negotiate. As any good procurement expert will tell you – at time of purchase you can negotiate just about anything. It all depends upon how much each party wants what the other is offering. The keys to a well-negotiated contract are to know your business need, anticipate future plans by both your organization and the marketplace, and realize that only those rights stated in the contract can be enforced.

As with any negotiation, you have no guarantee that you will be able to obtain all of your requests. But investing time and expertise in the area of contract negotiation will make it not only more likely that your organization can live with the resulting contract, but also more likely that your organization will experience a wider range of benefits from your overall SAM efforts.