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  • Writer's pictureDavid Panitch

The Critical Components of Software Contracts

Investing in the right software solution is key to your business operations. Once you’ve narrowed down your shortlist of providers to your top choice, the next step is to sign contracts.

Yes, contracts, plural.

There are different elements to the successful implementation of business software, and there will be more than one contract for you to review. It’s a wise move to do your due diligence and understand if the contracts presented to you cover everything they should. After all, these contracts are not just meant to protect your software solution providers; they should equally protect your organization, too!

Below, we examine the critical components and considerations of software contracts.

The Basics of Software and Services Contracts

Software and services contracts should include these basic tenets, depending on which type of contract you are signing:

  • Users: The type of users and the projected number of users should be defined specifically for your situation. There are times when you may want to start with a smaller number of licenses and grow the number of users as the implementation rolls out.

  • Deployment: You’ll decide this before contracts are drawn up, but understanding your options will help craft the right hosting agreement. Years ago this wasn’t much of an issue because “all” software was housed at the client’s location, but not anymore. Where will it be hosted and what will the cost be need to be carefully defined. Another question often overlooked is how many environments will you have and at what cost? Knowing what you really need will help build the correct foundation for your applications and data.

  • Success factors: How will you and your provider know that your software has been successfully implemented and meets your goals and objectives? Success metrics should be defined so that you are all clear on how success will be measured.

  • Statement of Work: Try to get as specific as possible. The implementers won’t like that because they prefer to have greater flexibility to grow the project scope. Don’t fall for the, “Well, if you make the SOW too defined then when our consultants find a different way to perform some work, their hands will be tied.” If the SOW is written, focused on results and not “how” the system will achieve those results, you’ll be just fine.

  • Breakup factors: Under what conditions will you be able to leave your vendor if you’re not satisfied, and how will this change occur? How do you obtain your data and in what format will it be delivered to you? Will you be able to do anything with it once you obtain it?

Questions and Negotiating

You should be negotiating on price, but what other factors in the contracts might be open to negotiation? Here are some points to consider:

  • Warranties

  • Support

  • Maintenance options

  • Upgrade process

  • Training options (on-site, virtual, recorded videos, etc.)

  • Consulting rate

During the negotiating process, it’s critical to understand what is covered under the terms of the contract, and answers to these questions can serve as deal-makers or breakers:

  • What does the user acceptance testing period look like?

  • Can you request a change in their implementation team members?

  • What does the SLA cover related to access outages?

  • How well defined are the support services?

  • What are the penalties for vendor service failure?

  • Will “work for hire” apply to the software I’m purchasing?

Do You Need an Attorney?

Yes. You’re signing a sizable contract and legal expertise is paramount to protect your interests.

This often includes defining who owns your software, when the contract can be terminated, and liability limitations. What happens if your provider is liable for damages to your business? Maybe they didn’t fix a bug, and it caused you to lose business? Your lawyer should help you define and understand who is responsible and what timeframe applies to remedying the issue.

Your legal counsel may also help you secure software indemnification and indemnity clauses, along with choosing a dispute resolution method should matters devolve with your software provider.

That doesn’t mean you need to have an attorney on staff in order to purchase software and services. There are lawyers who run private practices and help many different businesses with their software and professional services contracts. Some offer flat-fee pricing if you’re concerned about the cost of retaining their services.

Do You Need More Protection than the Contract?

It depends on your specific situation. Your legal counsel should help you understand how robust the contract is, how long it will protect you, and if you need anything else.

Selecting the right software provider is a multi-step process that starts with assessing your needs, researching companies that can meet them, determining the best fit for your organization, and understanding the contracts before signing on the dotted line.

Results Technology Group provides technology solutions to our clients with best-in-class software selection, project management, and business technology leadership services. Schedule a free 30-minute technology discussion.

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