Negotiating a Successful Business Software Agreement

Negotiating Business Software

Chances are, at some point, your company may purchase, develop, or customize software that it will use to run the business or support clients. For example, the software could relate to business and accounting management functions including human resources, customer, or supply chain management and monitoring.

Many large companies such as Microsoft Corp., SAP America, Inc. and Oracle Corp. offer well-known enterprise resource planning products devoted to these types of business functions. Other vendors tend to implement and customize these software products for your business’s needs.

So what should you do before your company gets involved in a large software project involving off-the-shelf, custom-built, or customized software products? Here are 5 quick tips you should keep in mind when negotiating these types of agreements:

  1. Determine who will own or have rights to any new technology developed while the vendor builds your customized solution
  2. Write a detailed Scope of Work that identifies the desired functions of the completed software that will be delivered
  3. Develop milestones for delivery of product, services, and payments
  4. Define the criteria for accepting certain results that must be delivered under the agreement
  5. Identify how the parties will determine that the agreement terms have been fulfilled and the project has been successfully completed

These tips generally relate to negotiating an agreement related to development and implementation of software. But there are longer-term issues that you should also consider.

What if you need to license customers so that they can collaborate with your company using the customized software? (Vendors often share supply chain and manufacturing management software with the manufacturers they support.) Have you negotiated the right to sublicense other companies that need to use your software solution? If not, you may have purchased a fully functional software but lack the contract and copyright rights you need to use it the way your company always intended.

Finally, sometimes the software you’re developing must interact with third-party software. You’ll need to negotiate a license to use that software in your company’s solution. Usually, this means that your company is requesting a license to the object code, not the underlying source code. (In case you are wondering, source code is a computer program written by a person in a programming language. Source code is then converted to object code by a compiler so that the instructions can be understood by a computer.) But if that company goes out of business or stops supporting that software, you want to have the option to access the source code for a period of time to perform any necessary updates and prevent your solution from breaking before its time for replacement.

Good luck out there.

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