Chapter 2: Checklist for Accessing Software Licenses

Developing a structured, consistent approach to the review of software license agreements will expedite the review process, reduce overall costs, and ensure key issues are not overlooked. In this chapter we provide a general checklist of key issues and questions to bear in mind when reviewing and negotiating license agreements. As a preliminary step, however, we present four critical questions that should be answered before review of the agreement is even begun.

1. The Four Critical Questions

Whenever we are presented with a new software license to review, we begin by asking the client four foundational questions. While each of these questions may seem basic, even self-evident, our experience has shown that few businesses take the time to think through these issues before entering into their licensing transactions. The answers to these questions will, in large part, dictate the type and depth of the revisions you will request to the vendor's agreement.

1. Business Purpose/Goals. What is the business reason for acquiring this application? That is, what are the goals the business expects to achieve in implementing this software (e.g., greater productivity, cost savings, interoperability with other systems, streamlining of business processes, new processing capabilities or functionality)? While this seems like a straightforward question, it is remarkable how many times the relevant business personnel cannot articulate a clear response. We suggest that if a clear reason cannot be articulated, the decision to acquire the software should be reconsidered or, at least, delayed until the specific business goals of implementing the application can be identified. Since the implementation of any new application will present risk to the licensee, a strong business case should form the basis of the decision to acquire each new application, regardless of its relative cost.

2. Criticality. How critical is the application to the organization? Will the application provide an essential business function? The answer to this question will frequently drive the performance levels we will require from the vendor. For example, suppose the application will be a client-facing (e.g., an application with which customers, clients, or business partners will interact) Web site. Spotty availability and poor response time would likely result in loss of customers and harm to the licensee's business reputation. To ensure this critical Web site performs properly and that the vendor has a continuing interest in ensuring good performance, specific service levels and appropriate remedies should be included in the agreement.

3. Fees and Costs. What are the initial license, support, and implementation fees and the ongoing yearly costs of the application? While this is potentially the most obvious of the four foundational questions, it is often the least clearly considered. For example, few business people look past the first year of the contract or the implementation period regarding fees. They carefully lock-in pricing during the implementation phase of the agreement, but give virtually no thought to price protection in later years when the licensee will have little negotiating leverage to obtain favorable rates.

4. Implementation Time. How long will it take to implement the software? The longer the implementation period, the greater the likelihood for cost overruns, delays, and other problems. Transactions involving implementations running over many months require special provisions regarding project management, staffing, cost and expense tracking, progress reporting, etc.

Having clear answers to these four foundational questions will ensure the licensee's goals in its negotiations with the vendor will be achieved.