Standard Components of Municipal Software Contracts
You Need an Attorney
You followed a rigorous methodology for your municipal or enterprise software project, conducted business process and needs assessments, went through demos and selected a product. You have finally arrived at the contract negotiation stage of your procurement project. If your Municipal Attorney or General Counsel has experience with software contracts, you are in luck! If not, you should consider contracting an attorney who specializes in software contracts. If you run into a contract dispute down the road, this may turn out to have been money well spent. Compared to the 6-8 figure project you are embarking upon, the cost of expert advice from a specialist attorney will be negligible and well worth the cost.
On being presented with initial contract documents from a software company, one municipal attorney with whom I worked stated “Whenever I see contract documents that are this complicated I always suspect that they are swindlers. Now that I have reviewed the documents, I know they are swindlers.” He had a great point. Alternately, your software vendor might supply you with a two-page contract that represents the entire agreement. This is equally suspicious. Make sure you know what you are getting into.
In all likelihood, your vendor will provide you with a set of contract documents that are completely one-sided. Your attorney will need to negotiate the terms of the contract documents to provide you with binding assurances, leverage and a more fair distribution of the risks.
I am not an attorney and I am not providing legal advice but I have been involved in many software and services contract negotiations. Following is a brief description of standard contract documents you might expect to see. Don’t take my word for anything, though. Your attorney must review and approve all the documents.
Don’t count on verbal promises and handshake deals with the sales representative who brought donuts, coffee, and lunch. Every aspect of the deal must be in writing. After the contract has been signed, you may never see the sales representative again and you will be dealing people whom you have never met.
Some Standard Components of Software Contracts
Following is a brief description of the essential components you might expect to be part of a software deal. All of it might be in a single document, or the vendor may provide separate documents for each component and there may be agreements with third party vendors.
Software License Agreement
This is your license to use the software and there is a fee attached to it which may be a one-time fee or an annual recurring fee that will continue for as long as you use the product.
Software Maintenance and Support Agreement
The agreement for the continuing support of the product after Go Live which should include technical support and continuous upgrades.
Hosting Services Agreement (for SaaS products)
The agreement that covers hosting services which may be provided by a company other than the software vendor.
Statement of Work
A detailed breakdown of all the services the vendor is going to provide as well as the vendor’s expectations of customer responsibilities. Don’t expect that that vendor will come in and deliver a perfectly working product. Even if you paid for a turnkey solution, you still have a lot of work to do. Anything you might require that is not in this document may result in extra charges or a significant cost overrun. The statement of work should be very detailed must be incorporated and made reference to in the contract.
Service Level Agreement
This document describes the vendor’s commitment to the specific level of service you should receive should you have a problem. I would recommend negotiating penalties for failure of the vendor to meet the defined service levels.
The vendor’s response to the RFP or RFB with all the binding commitments they originally made. This should be incorporated and made reference to in the contract.
Payment Schedule – Software License
I recommend negotiating a holdback on full payment of the software license fee until after Go Live. This will give the vendor a strong incentive to get to Go Live quickly and efficiently. You won’t release the money until the product works to your satisfaction.
Payment Schedule – Implementation Services
The agreement that covers how ongoing professional services for implementation, training and travel will be billed including a realistic estimate of anticipated services. Initial proposals almost always underestimate the services that will be required.
Payment Schedule – Maintenance and Support
Make sure you address annual increases in maintenance for at least 5 years or more so that you are not faced with a large future increase in maintenance and support costs.
A detailed project plan and timeline for the project from kickoff to Go Live and beyond.
Proof of vendor compliance with your liability insurance specifications. This should be approved by your attorney, risk manager, or insurance broker.
There are many components to a software agreement and that is why you need an attorney. Once you compile all these documents, you make be looking at hundreds of pages. Depending on the availability of your attorney and the vendor’s legal staff, the contract discussions and negotiations could require from several weeks to several months depending on size and scope of the project.
Good luck with your contract negotiations! If you just want to bounce some ideas around or discuss your project, feel free to e-mail me at email@example.com. You can read more about IT Governance here.
Copyright © Jeffrey Morgan 2016by