Understanding your IT Contracts

July 16th, 2012

Do you understand all of the important pieces that should appear in your IT software contracts?

Today’s post is by Mark Davis; Sr. Vice President of Operations and CTO at SafeSourcing. 

One of the common pitfalls of negotiating contracts for IT categories, especially software, is having the right people involved and the right details included.  Many times corporate legal teams will not have the technical depth to understand the project needs or timeline and IT managers are often too conservative to pushback on language that will leave the company vulnerable.  Having both sides review contracts closely will allow for the best results for your company and ensure that it contains the right details.

In today’s blog we will be looking at some of those details to include in your IT software contracts to ensure you have the broadest protection.

Specifications – Statements of Work and specifications are some of the most important elements in your IT contracts.  They will highlight the project and what the solution you are purchasing will accomplish.  It is important at this stage to make sure that every specification is captured in the contract.  Ensure that you have architectural specifications, design and functional specifications, and most importantly performance specifications.  These will help ensure that the solution delivers as expected, with no surprises 

Fee Structure – Fee structures for IT related purchases can be complex and should have good supporting detail surrounding them.  This includes a payment schedule of deposits and deliverables where applicable and how the licensing will be structured.  Often user-based, sever-based, CPU based and volume-based licensing are the most frequently used and each comes with its own pros and cons. Make sure you get the best structure for your business as well as explore the possibility of an Enterprise or Unlimited option if it makes sense.

Code Escrow –When dealing with smaller companies it is a good idea to pursue the possibility of putting the source code into escrow.  By defining the parameters by which the code would be accessible to your business, you will help to ensure your investment is protected regardless of what happens to the supplier’s business. 

Third Party Software – The use of third party tools in IT solutions can make some IT solutions more complicated.  Make sure that the licensing, fees, relationships between vendor and 3rd party companies are well defined so that you can know who is responsible for which aspect.  Above all, make sure that the responsibility of supporting the third party tool is detailed in the contract so that you will know who you will be contacting in the event of an issue. 

For more information about how SafeSourcing can assist with sourcing your IT projects, please contact a SafeSourcing Customer Service Representative.  

We look forward to your comments.

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