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Chapter 27 - Software Licensing and Maintenance Contracts

Appendix C: Best Practice Tips for Software Agreements

The list below includes best practices for software procurement that may achieve increased benefits:

  • Define what is to be accomplished with the software, the current and desired platform/environment and all functional and technical performance expectations in the solicitation and contract. Because these must be comprehensive and complete, impacted end users should be part of any project planning and pre-purchase committee discussions.

  • A supplier may insist that the agency accept its standard software license terms, however, diligent negotiations should be pursued. The Commonwealth and VITA may have mandatory terms and, to accept the supplier's standard terms may put the Commonwealth at risk. Software contract negotiation assistance may be obtained by contacting:

  • Attempt to spread payments out based on events or milestones. Just like working with a home contractor, paying for everything at once can reduce the agency's leverage if there is a problem later. Carefully map all payments to clearly defined, pre-negotiated milestones, service levels and/or acceptance criteria; include exact deliverable dates.

  • Ensure contract termination policies and requirements are clear and in writing.

  • Spell everything out. Although it may be more work, put deliverable requirements - specifics of what a product will do at what time - in the contract. Include consequences if the software does not perform as expected. A service-level agreement might say that for every hour a server is down past 24 hours, the supplier credits the agency $1,000.

  • Do not automatically accept the first price the supplier offers. The agency should strive for better pricing without destroying the customer-supplier relationship. If that relationship isn't positive, an agency might secure a good price for the first contract term, commit to a product, and then see a significant price increase in following years or in support and maintenance services. Be persistent in efforts to lower prices. If the supplier cannot or will not lower prices, ask who in their chain of command has the authority to negotiate and work with that person. Remind suppliers that if the Commonwealth or your agency adopts a new technology, other state or local government customers may follow.

  • An agency may leverage its buying power by being part of a larger group of buyers and purchasing off a VITA statewide contract. This increases the supplier's potential customers and can result in lower prices.

  • Negotiate multi-year contracts for a percentage discount. Agencies should expect to receive a 5% to 15% discount off the final discounted price. Be careful to not mix a multi-year discount in with a volume discount. The multiyear discount and the volume discount should be negotiated separately and subtracted from the original price.

  • Be clear about the rights to your data. Suppliers should be bound by a confidentiality agreement. At contract termination, a supplier is required to give all Commonwealth or agency data back in a usable format.

  • Ensure that the software license being procured is perpetual and never runs out, including at the end of the software contract, when maintenance fees expire or if the company is acquired or goes bankrupt.

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