Strategic Computing | “Don’t let sleeping contracts lie”
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“Don’t let sleeping contracts lie”

“Don’t let sleeping contracts lie”

12:02 12 November in Software Procurement


A phrase that is often used during software contract negotiations is    “I don’t understand why we are putting so much time and effort into negotiating this contract when, once we agree and sign it, it will simply sit on a shelf and gather dust“; this couldn’t be farther from the truth.

IT contracts (and software contracts in particular) are strong contenders for active review and focused contract management. When software contracts are being negotiated at the outset, a number of key parameters will be in play, including the customer’s desire to get the best value for money up-front and over the life of the agreement and the supplier’s’s desire to sell as many products, features and options as possible.

Complex terms are the norm in software contracts

Complexity around software usage has evolved over the years and licensing agreement complexity has evolved in line with them. These complex usage and contract terms tend to enforce supplier “lock-in” and create customer switching difficulties. Software suppliers are adept at building “gotchas” into their licensing and support agreements that limit customer flexibility to reduce the costs over time as customer circumstances change.

Consequently, the buyer may have a strong tendency to over-state the demand for the products on the assumption that the additional discounts earned by higher volumes will offset the risk of over-purchased software. This “over-purchase” may also be seen to mitigate any risk of over-deployment of the supplier’s software down the line (which might otherwise result in licence non-compliance and potential commercial and legal risk). However, if the originally-anticipated additional deployment does not materialise, the support agreements may be burdened with support charges that are being paid for “shelfware”.

Software support “lock-in”

Once software licenses are purchased they will also require to be supported and maintained over time. Support and maintenance agreements cover the provision of technical support for queries, bug fixes, new software versions and releases, and so on. The contract will have its own set of very specific terms and conditions that will, on the whole, be constructed in favour of the supplier. In recent times, as recurring software support revenues have become more significant revenue contributors for large software companies than one-off licence fees, this focus has resulted in even more rigorous terms being implemented and enforced to “lock-in” support charges and restrict customers’ ability to reduce them.

 Circumstances do change over time

However, customer circumstances do change over time, and these should be reviewed periodically to assess whether opportunities may exist to release value from old contracts that were implemented during times of significantly differing circumstances. Such opportunities may include reducing the number of users, devices and software instances that require to be supported, changing the user classifications (for example, from full capability/full operational users to lesser use entitlements), removing products that are no longer used from the support schedules and so on. Changes such as these can have a significant impact on support costs.D

“Don’t let sleeping contracts lie”

The lesson, therefore, is “don’t let sleeping contracts lie”. A review of existing software contracts can unlock significant opportunities for cost reduction and added value.

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