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Chapter 26 - Negotiating IT Contracts

26.3 Special negotiation issues

26.3.1 Software licensing negotiations

Negotiating a contract for software licenses presents some unique and critical considerations. The form of license grant, ongoing fees and supplier requirements for monitoring software usage are a few examples. It is very important to read Chapter 27 - Software Licensing and Maintenance Contracts of this manual, Software Licensing and Maintenance Contracts, for important information on understanding and negotiating intellectual property, software types and licenses, warranty and maintenance support, risks, etc. Generally, key negotiation points for software licensing include:

  • Rights to use/access, and use/access restrictions
  • Licensee’s intent to release to third parties
  • Definition of the parties entering into the licensing arrangement
  • Accurate definition of software to be licensed
  • Operating systems and versions supported
  • Source code availability (escrow)
  • Right to modify
  • Limitation of liability
  • Warranty period
  • Right to copy and distribute (manuals, backups, training, replacement, testing)
  • Acceptance criteria definitions

Whether the purchasing agency will be granted a software license directly from the supplier or from a value-added reseller (VAR) on behalf of a software publisher, VITA recommends beginning with this type of license grant requirement language in the RFP: “a fully paid, perpetual, worldwide, nonexclusive, transferable, irrevocable object code license to use, copy, modify, transmit and distribute the Software and Documentation including any subsequent revisions, in accordance with the terms and conditions set forth herein and subject only to the limitations and/or restrictions explicitly set forth in this Contract.”

Suppliers prefer to limit and restrict usage and access rights as much as they can; however, careful consideration should be given to negotiating acceptable license rights, both for usage and access. Limitations on license usage may negatively impact the agency’s ability to fulfill its future goals and/or the Commonwealth’s strategic and/or architectural requirements.

The agency may consider supplier-provided contract language only when the supplier is a reseller of the software and the software publisher requires an end user license agreement (EULA). In such case, the supplier should be advised that a License Agreement Addendum (LAA) is required to address terms and conditions of the EULA with which the agency or the Commonwealth, by law or by policy, cannot agree. Supplier shall have sole responsibility for ensuring that any such Software Publisher executes the LAA. License Agreement Addendum templates (one version for VITA use, another version for other agency use) are located under the Forms section of this VITA SCM website: SCM Policies & Forms.

If the purchasing agency is an executive branch agency, board, commission or other quasi-political entity of the Commonwealth of Virginia or other body referenced in Title 2.2 of the Code of Virginia, the license shall be held by the Commonwealth. If your organization is a locality, municipality, school, school system, college, university, local board, local commission, or local quasi-political entity, the license shall be held by that public body. If the purchasing body is a private institution of higher education who is allowed to purchase from VITA’s statewide contracts, the license shall be held by that institution.

The type of software license(s) required for your project should have been identified in the solicitation, based on the project’s current and future business needs. The solicitation should have requested various pricing scenarios to accommodate additional license purchases should they be needed in the future. These final prices will be a negotiation item. The agency will negotiate pricing for one or more of the following license types: designated CPU concurrent use, project specific, site, and/or enterprise-wide. Refer to Chapter 27 - Software Licensing and Maintenance Contracts of this manual, Software Licensing and Maintenance Contracts, for a definition of these license types.

Since software license terms may charge per the number of users/seats/etc., a supplier may want to ensure through scheduled audits that they are being paid the correct licensing fees. If the supplier requires this in the contract, be sure the contract specifies the details of how that audit will occur. The inclusion of an audit term and condition should be considered a strong concession to the supplier; look for something in exchange. Here are some key points to include in the contract regarding audits:

  • Define how often they can take place (once per year is common), and for how long after expiration of the contract.
  • State that all audit costs will be paid by the supplier.
  • State that all audit results will be provided to both parties.
  • State that audits may only occur during business hours (clearly define these, as it pertains to you), and require prior written notification several days in advance.
  • Define where the audit will take place.
  • Define what information will be available during the audit, and clearly specify particular areas not covered (such as personal data).
  • Define any agency or Commonwealth limitations and restrictions, and security or privacy standards.

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