Change of control – Beyond escrowing source code, you could try wording the deal so that you get license, maintenance and implementation fees returned if the vendor or product is sold off during the first year. Why? Because few products remain unchanged after another company acquires them. Material change should include asset sales, acquisition, divestiture, loss of founder and insolvency.

Entitlement – Software vendors often use the accumulated maintenance fees you’ve paid over the years to develop a new-but-similar product line, and then ask you to pay a new licensing fee to get full access to the new product. Don’t wait until this new product is released; instead, incorporate greater self-protection into the original contract just in case.

Sunsetting policy – Consider writing into your contract the minimum advance warning you would need if the vendor decided to retire the product you’re licensing. How much you’ll need depends on whether your organization typically runs the most current revision level or an older version. It’s advisable to become as current as your budget and timeline will allow.

Enterprise pricing – All bets are off when it comes to user counts and hardware infrastructure over the next few years. Ensure that your license doesn’t tie you to a disadvantageous cost structure or pricing model that becomes obsolete when you adopt cloud computing, for instance.

Maintenance fees – Vendors typically link maintenance fees to a fixed percentage of the “then current list price of the software.” And since some vendors increase their list prices faster than the cost of living and/or faster than your business will grow, consider tying maintenance fees to the Consumer Price Index, for instance, instead of the software’s list price.

#1. Don’t spill the beans. Often, vendors talk to people at buying companies before the negotiations start, then gear the negotiation to the budget. The business ends up thinking they got a good deal, when they may have got another 20% off.

#2. Use your leverage. Let the vendor know it has a credible competitor, but not who it is. It’s also crucial that the negotiator understand the marketplace climate and the relative importance of the deal. Buying a large package from a vendor that’s coming off a poor financial quarter can work to your advantage. A vendor trying to break into your vertical industry may be willing to discount a product to get a foothold in a new area.

#3. Form the negotiating team early. Nothing kills more deals than bringing in the team at the last minute, but that’s what happens about 80% of the time. Too many companies think of contract negotiations in terms of price, when that’s a small component of the deal. Today, people are focused on price, but the risk and investment are a lot higher on the implementation agreement.

#4. Future-proof the deal. What happens if the vendor goes bankrupt, gets acquired, or doesn’t live up to the contract’s terms? Future-proofing a contract gives your business rights. First, escrow the software’s source code. Most times, when a business licenses software, they only get the object code, not the core source code. An escrow clause in the contract lets businesses obtain the core source code should the vendor go bankrupt or sell its assets.

#5. Take advantage of the here and now. Use current negotiations to get better prices on future software purchases. You may be able to get a deal for additional products purchased within the next few years at a pre-specified discount.

#6. Beware of hidden fees. Does your business have the right to relocate the software without penalty? If you need a copy of the software to test a disaster-recovery plan, are you required to pay full price for another license? Such hidden costs can add up to significant extra unbudgeted spend.

#7. Customisation can bite you in the end. Be as specific as possible about what’s being customised and how it should function. If you’re not very clear, the vendor won’t build it right. Vendors often will include a provision that says if a company doesn’t accept or reject the customization within 45 days, the customization is automatically accepted. That shouldn’t be the way it works. A company should have the right to refuse a customization whenever it doesn’t function properly.

#8. Know your definitions. How are you defining a user, a partner, or a customer?

To engage in successful software contract negotiations, businesses must rigorously assess their needs and requirements, understand their providers’ strengths and liabilities, and anticipate change. Software contracts are often written to favour application providers and phrased in vague, high-level language that can make companies vulnerable to additional fees or fewer usage rights than customers anticipate. Introducing additional complications, change is the only constant in today’s IT environment. Mergers and acquisitions are the norm for companies and their service providers; business models, such as the progressive migration toward outsourcing and globalization, are continually evolving. Consequently, companies must approach contract negotiations as a strategic element of their business life cycles. After doing the necessary homework, a company might decide that a new, marginal or small application provider supplies the most-appropriate technology for its requirements. This presents the nagging question, “What happens if this provider becomes unable to abide by our service agreement, or worse, goes out of business?” As “insurance” against such a conundrum, customers are increasingly investigating software escrow agreements, wherein they have their software’s source code stored, either through the provider or a third party.