Background – The need for software licence management
With software licensing and maintenance comprising almost one third of overall IT budgets on average, software is a key company asset. However, while there is increasing awareness of the risks associated with unmanaged software assets, the same level of importance is not always assigned to the management and optimisation of software licensing. Set out below are BHW’s top 10 tips for organisations when obtaining and using software licensing agreements.
Top 10 Tips for software licensing
1. Identify critical terms – To negotiate the most suitable software licensing agreement, it is vital that you ensure you understand the critical licence terms and the specific needs both of the business and the end-users.
2. Ascertain strategic requirements – Underpinning the identification of critical terms, it is important to identify the longer-term strategic requirements of the organisation, and to ensure that, as far as possible, the software licensing agreement meets these requirements. For example, it may be more cost-effective overall for an organisation to obtain a licence bundling in additional applications, in anticipation of those applications being used in the longer-term. When considering the strategic requirements of the organisation, it is important to factor in the potential both for future expansion and worst case scenarios. Moreover, in negotiating the agreement, it is crucial to consider how the business may change and how it might adapt to any eventuality. Failure to consider these areas could be an expensive mistake.
3. Involvement across the organisation – In identifying the longer-term requirements of the organisation and – by extension – the critical terms of the agreement, it is important to involve all of the relevant people within the business. Accordingly, while they will be vital to the formulation of the agreement, organisations should avoid leaving things entirely to their technical department.
4. Updating/keeping track of key terms – Having identified the key terms to be included within the agreement, it is advisable to create and regularly update a chart or matrix of these key provisions. By doing so, an organisation can ensure that it is always dealing with the most relevant information and, in doing so, progress negotiations as efficiently as possible.
5. Due diligence – Having fully identified all of the points it requires to be covered within the licensing agreement, an organisation then needs to conduct appropriate due diligence regarding the potential supplier. As a first step, it is crucial to investigate the intellectual property involved and to confirm that the supplier is actually entitled to supply, as well as considering the financial stability of the supplier.
6. Contacts – It is vital to identify people who will serve as the point of contact and liaison for the supplier. Ensuring consistent channels of communication will minimise confusion and ensure that negotiations progress as efficiently as possible.
7. Controlling the negotiations – Organisations should try to control the negotiations, but should also recognise and understand the other side’s negotiating position. As set out above, successful preparation and ongoing management of the negotiation process at an organisational level are key to maintaining overall control.
8. Tracking renewal dates– Once an organisation has signed a licensing agreement, it needs to keep track not only of the agreement itself but also of any other relevant renewal dates (e.g. for maintenance). If not, the organisation can be vulnerable to lapses in software maintenance programmes, which can prove costly. Indeed, while some vendors may demand that organisations just pay maintenance retrospectively to the renewal date, others could make organisations re-purchase the licences.
9. Communication between departments– As when negotiating the licensing agreement, co-operation between departments is key to complying with the terms of the agreement and using the software licences as efficiently as possible. To avoid software compliance issues, an organisation’s IT department needs to work closely with its procurement function to help ensure that software is installed and used in accordance with the respective licence agreements.
10. Tracking installation and use – By tracking installations of software and its usage, organisations may be able to substantially reduce ongoing maintenance payments (either because the applications are not being used, or because they are no longer supported by the vendor). However, organisations often underestimate the complexity of tracking software licence compliance. One option is to use automated software licence audit solutions. These enable organisations to collect all the necessary data – from asset inventory to purchase orders and organisational data, and apply licence entitlement rules to generate the reports required to enable effective management of the software licences. Automated licence audit solutions enable organisations to take a strategic approach to understanding their software needs. In taking such an approach, an organisation can ensure that the software it has deployed contributes to the organisation’s efficiency and effectiveness, while also maximising the return on investment and reducing costs.
If you would like any advice in relation to software agreements, including licensing agreements, please contact Matt Worsnop, Head of BHW’s IT and Telecoms practice, on 0116 289 7000.
Matt Worsnop has an “excellent understanding of the IT contracting market” – Legal 500
BHW Solicitors’ IT and Telecoms practice is one of only a handful in the East Midlands which is recommended by both the Legal 500 guide and the Chambers and Partners directory.