27.5 Contractual provisions for software license agreements

27.5.2 Payment of software licenses

This term outlines the payment requirements of the agency. A software supplier will often require either full payment in advance or a significant percentage in advance with the balance due upon shipment or receipt of product. Obviously, making a full or major payment in advance limits the agency’s leverage to not pay or withhold payment should there be a problem with the product.

It is suggested that agencies make payment arrangements based on the successful completion of specific events or milestones. For example, a percentage of payments can be made based upon delivery, installation, preliminary testing, and final testing. The actual percentages will vary by project. Suggested contract wording: "Payment shall be made in the listed increments based on successful completion and agency acceptance of the following events: (assign the actual percentages as appropriate to delivery, installation, preliminary testing and final testing). Written acceptance of the deliverable and invoice approval must be given by the agency before payment will be issued."

Supplier hosting of Commonwealth applications (Application Service Provider) and supplier-provided Software as a Service models normally bill monthly or annual subscription fees which include maintenance and update costs. Agency should try to obtain in-arrears payments rather than advance payments. It is also recommended to negotiate scalable usage fees so that payment is only for what is used.