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Chapter 27 - Software Licensing and Maintenance Contracts

27.5 Contractual provisions for software license agreements

27.5.3 Maintenance/support/upgrades

If the supplier knows that the agency intends to be largely self-sufficient, which is a recommended best practice, the supplier will usually be more accommodating on maintenance costs. This contract term deals with ongoing maintenance, support fees and future product upgrades after the product is installed. Often, these terms are used interchangeably. Agencies should be wary of maintenance agreements that do not have a cap on increases in annual maintenance or subscription fees, meaning the supplier is free to charge any price in subsequent years. It is recommended that agencies insist on an inflation clause with a "cap" (a ceiling of the retail price index or CPI) in the contract that states the maximum maintenance fee increase that the supplier may charge the agency per year.) Software suppliers may attempt to begin maintenance fees upon delivery of the product. Typically, the purchase of a software package includes a warranty, which should include maintenance coverage during the warranty period. Be sure that the support start date coincides with the expiration date of the warranty.

The software supplier may look to provide product upgrades to the purchasing agency at an additional cost. The need for upgrades may vary by product. The agency should decide how upgrades will be provided and at what cost. A best practice recommendation is that maintenance support be treated as a separate contract. The purchase of software can be a one-time transaction while maintenance/support is considered an ongoing item with a defined start and end date. Separating the two contracts allows the agency the option to continue using the software even if it later decides to discontinue maintenance/support.

A software maintenance agreement should include remedies or equitable adjustments to maintenance fees for the agency by the supplier if the product does not perform as promised. Often, an agency will judge the supplier's performance to a problem based on response time, or the amount of time it takes the supplier to respond to the customer's call for help and to remedy the error. The maintenance agreement can be structured to charge the supplier for services that do not meet the pre-determined parameters concerning system up-time and downtime or other service level commitments.

The agreed-to terms of any software maintenance agreement should match the agency's business requirements and complexity of the project. Below is an example of suggested language to include in the agreement. The final terms, however, should not conflict with any of the solicitation's requirements (if applicable), or the agency's needs or budget, unless the agency has so negotiated with the supplier.

"Supplier shall provide a separate agreement for any maintenance service provided. This maintenance agreement shall begin upon expiration of the warranty period. Supplier shall provide services for the entire period of the maintenance agreement. Supplier shall adhere to the following response criteria regarding maintenance requests. (This is to be determined by the agency on a case-by-case basis. The response time criteria shall include categories of severity, chain-of-command reporting, and measurement of response times over extended periods, maintaining and providing access to electronic information, and e-mail communications.) Supplier shall provide a service tracking and reporting mechanism, which shall be available to the customer at all times either via e-mail or on the web. Agency, at its sole discretion, may order from Supplier support services ("Maintenance Services"), including new software releases, updates and upgrades, for a period of one (1) year ("Maintenance Period") and for an annual fee of ten percent (10%) of the Software license fee paid by any Authorized User for then-current installed base. Supplier shall notify Agency sixty (60) days prior to the expiration of the Maintenance Period, and Agency, at its sole discretion, may renew Maintenance Services for an additional one (1) year period. The annual fee for Maintenance Services shall not exceed the fee charged for the preceding year's Maintenance Services by more than three percent (3%), or the annual change in CPIW, as defined in the Fees and Charges section, in effect at the time, whichever is less. Agency can decline to implement enhancements, upgrades or a new release if those programs interfere with the agency's intended usage or operating environment." (Declining enhancements, upgrades or new releases, however, can present other risks, so agency is urged to be mindful and discuss thoroughly before making that decision or including such a statement.)

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