27.3 Software licensing costs

Licensing of software presents a unique negotiating opportunity. First, the license price accounts for the software buyer's major initial cost. Secondly, the agency should determine the appropriate type and term of the license to help contain ongoing costs. Agencies should not purchase more licenses than they need or additional software functionality or add-ons that can drive up the price.

A major expense in purchasing software licenses is the cost of ongoing software support and maintenance. Try to concentrate on negotiating up the scope of what is included in license support rather than negotiating down the price first. Fees for support and maintenance are generally charged as a percentage of the license cost, payable up front for the first year and as an ongoing cost throughout the life of the software license. The agency can negotiate the percentage increase of maintenance costs and write cost-increase caps into the software contract to head off arbitrary inflation of annual fees. Remember that the percentage fee charged for support and maintenance is always negotiable.

The agency should be careful to identify all the costs linked to software licenses and associated products, services and deliverables. These might include:

  • Initial costs
  • Hardware
  • Software
  • Communications
  • Installation
  • Maintenance/ongoing support costs
  • Interfaces
  • Application implementation support costs
  • Technical support costs
  • Training
  • Documentation costs
  • Integration costs now and when you implement new releases of the software. Will the software be linked to other systems to or from this system such as PDM, CAD, ERP, APS systems? If so how? It is essential when defining integration parameters that the interface is both specified and stable.
  • The Commonwealth’s entitlement to new releases/bug fixes.
  • The cost of tailoring. Include a clause that specifically precludes other costs now and in the future. Tailoring language to look for and reject will:
    • Say the agency can have new releases but these will be supplied as fixes to the old release or that for a cost the software supplier would integrate the fixes for the agency;
    • Impose a time limit for free upgrades even when the agency subscribes to maintenance. Be sure that the agency’s entitlement for free upgrades is not time-bound but lasts for the duration of the software agreement.