Sorting out software licenses

14 July 2011 | Adviser Q&A

What is your view on negotiating for software licenses? What is the best way to get a good deal?

Purchasing manager, Rochdale

Andrew Swift, senior procurement manager – core infrastructure, Sky

We deal with a number of software providers, many of whom are just set up for subscription-based licences. One way we try to drive a good deal is to negotiate an unlimited licence agreement.
Consider what your deployment projections are over the next few years – are you increasing the licences or decreasing? Do you actually know how many you have?

The other major element of software negotiations are support and maintenance costs, which might be based on the gross cost of the licence rather than what you paid for the software. Check to see how these costs are calculated.

Check the contract because you may get a great deal, but don’t neglect the legal side of the negotiation. Who are the parties in the contract? Where can the licence be used? Look out for intellectual property rights clauses, especially if the software was written for you. What are the indemnities against loss of data and consequential losses? Find out what alternatives there are to the software you are buying. Are open source packages available?

Andrew Curtois, IT procurement consultant, Turnstone Services

Software is one area where the supplier’s costs can have little relevance to the price paid by the end customer.
Work out what you can leverage to drive the price down. If your suppliers/customers are implementing the same software, you could drive the cost of licences down to nothing as the vendor will make revenue elsewhere.

If you can act as a reference site for the vendor, they will want to ensure your experience is positive, and give you commercial advantage in negotiation.

It’s advisable to tie payments to milestones to ensure what you pay for is actually working properly – suppliers will often resist this.
To manage risk, the buyer should consider an escrow agreement for the software code. When negotiating software-as-a-service consider step-in agreements with the software’s platform supplier or even a data escrow agreement.

Consider the implications of the Data Protection Act. Ensure the supplier recognises its obligations and indemnifies you accordingly.

Paul Franklin, IT sourcing advisor, PA Consulting

Do your homework and make sure you understand:

• Which licenses you own and use in your organisation, including future demand based on business requirements.
• Where to obtain key license data.
• Your current contracts, especially those that may have licensing as part of a larger IT service. Have you purchased licenses outright, are you already leveraging the benefits of an enterprise agreement or are subject to annual renewal? Do you understand the technical clauses?
• Have you got a strategy? Do you realise the impact that licensing negotiations may have on other
IT services? Do you understand your vendors and their market? Are you clear how to maintain healthy competition through including viable alternatives?
• Are you ready to negotiate? Do you have anticipated volume discount levels you wish to achieve set against your demand? Do you know where you can lever other aspects of IT contracts to achieve better license prices? Do you understand which terms you would like to negotiate?