Scrutinize Your Multichannel Software Contracts

It’s amazing how many companies don’t look very closely at software license agreements. These are legal documents, and without close review of payment terms, deliverables, schedules, termination options and other key details, you could be putting your company at risk of losing thousands of dollars.

To protect yourself and your company’s interests, don’t rush into signing an agreement just because the vendor is giving you a soon-to-expire discount. Getting to a fair agreement for both parties takes time, negotiation and a careful review of any contract. (A quick disclaimer: The focus of this article is to alert you of some of the items you’ll encounter in software agreements; it’s not to be taken as legal advice.)

As part of your software selection process, you probably submitted a request for proposal (RFP) listing your detailed requirements. From vendor responses to the RFP and other due diligence you made your selection. The selected vendor’s response to your RFP should become an addendum to the vendor’s agreement.

Most software vendor license agreement terms are very favorable toward the vendor. Most vendors like you to sign the agreement, then work on the details of defining the implementation schedule and costs, modifications, training, and so on. Once you sign the agreement, you’re bound by the terms, regardless of what the vendor may have told you verbally. All terms that you negotiate need to be written into the agreement. Any other representation, written or verbal, isn’t an addendum to the agreement, and thus unenforceable.

One of the most important aspects of software licenses is the payment schedule — how much and when. Don’t pay for everything until the system is installed, your staff is trained, you’ve converted from your existing system, and you’ve successfully tested and balanced the system and all interfaces to other applications and/or service bureaus before the “go-live” date. Payment terms should be realistic: While the vendor might like 100 percent payment at the time of signing, this isn’t realistic for your company. A schedule that represents good faith and payment for milestone delivery is best. For example, try a payment plan that calls for 50 percent at the time of signing, 20 percent at installation, another 20 percent after acceptance testing, another 5 percent after “go-live” and the last 5 percent 30 days after “go-live.” You want to have some leverage should there be any issues along the way.

Usually there’s a software license and maintenance agreement, and a professional services agreement. Both of these need thorough review before signing. The software license agreement defines the terms of the payment schedule, delivery schedule, warranties and remedies, limitation of liability, software maintenance, termination rights, dispute resolution, indemnification, insurance coverage the vendor is required to maintain, and software escrow, among other items that may be specifically related to the vendor’s software.

In addition to the software license agreement, the vendor also will want you to sign a professional services agreement. The most important aspect of this agreement is the statement of work and deliverables. These include modifications, training schedule, conversion and project plans of all tasks that need to be completed, all leading to the targeted “go-live” date. Detail all of these deliverables and have a fully loaded budget for the same. Otherwise, you’re likely to have surprises and cost overruns. Additionally, the professional services agreement should include compensation, expense reimbursement, terms of payment, warranties, indemnification, ownership of any software modification development, integration to other applications and limitation of liability. There may be additional items added to the professional services agreement based on individual company needs.

It’s also important for someone in your organization to be familiar with intellectual properties to review the details. If you don’t have an attorney on staff familiar with intellectual properties law, have these agreements reviewed by an attorney.

Proceed cautiously, allowing enough time for a thorough review of software agreements. Ensure everything is included that the salesperson said would be included for the price. Seek the best possible payment terms for the software license and maintenance agreement, and use pay-for-performance on the professional services agreement.

Paul Sobota is vice president of F. Curtis Barry & Company, a multichannel operations and fulfillment consulting firm with expertise in multichannel systems, warehouse, call center, inventory and benchmarking. Learn more online at http://www.fcbco.com