HRIS, ERP, PIM, CLM, CRM… software is everywhere, and is now essential to the running of any business. The implementation, maintenance and support of such software involves the negotiation and conclusion of license agreements (also known as SLAs, or Software License Agreements, not to be confused with its namesake, the SLA for Service Level Agreement).
These sometimes indigestible license agreements cover a number of points, from hosting and performance levels to pricing and penalty levels. In this article, we propose to identify the major issues and reveal our best practices and tips for negotiating these SLAs.
1. Understanding contract issues
All too often, we find that our customers go through a similar software purchasing process: a business contact, acting as a prescriber, selects one or more suppliers following a more or less formal invitation to tender, and then involves the purchasing department to discuss prices and commercial terms, the IT department to discuss integration and/or security, and finally the legal department to agree the content and terms of the contract.
The difficulty with such a fragmented approach lies in the lack of overall vision on the part of each stakeholder. The buyer will have only a partial view of the business contact’s needs, the legal expert will not really understand which clauses or subjects are important in terms of the software’s use, the IT department will submit the same cybersecurity questionnaire to a complex, structured software package as to a commodity available as SaaS, and so on.
In this case, it is advisable to bring the various players together beforehand to explain the context and the issues at stake. This exercise will enable everyone to express their expectations, obligations and tolerances, so as to start negotiations with a clear vision of the scope that the contract should (or should not) cover, the essential points and, conversely, those that are negligible (and avoid the 20-page RGPD appendix for software on which no personal data transits).
2. Ensure commitments in terms of availability and support
Here, the emphasis is on firm, measurable commitments, and as far as possible, avoid “best efforts” commitments and other promises in the form of “common industry practices”.
The lack of precision in these commitments on a subject as important as availability and support can lead to delays, stress and tension during contract execution. Setting minimum service levels (the famous SLA), recovery time guarantees (RTG) and maximum response times to incidents and tickets, according to severity levels (see ITIL guidelines) are all good reflexes to recommend.
Of course, these various commitments must be understood: What does a 99.7% SLA really mean for my business? Do I need such a level at weekends? Etc.
In terms of support, do you need a dedicated team, 24/7 availability or on-site intervention in less than 4 hours? Remember to ask yourself these questions beforehand, as they will have an impact on pricing, on the choice of supplier and potentially… on your business!
Finally, what happens if these commitments are not honored? Since legal time is often far removed from business time, you’ll need contractual stipulations that match your stakes. A range of solutions are available: penalties, credit notes, bank guarantees, invoice deductions, replacement service, etc.
3. Aligning usage with contract scope
This is one of the most important optimization levers! In fact, it’s not uncommon for audits or contract renewals to reveal a significant discrepancy between “billed and consumed”.
While publishers and distributors have every interest in selling large volumes of capacity, your interest, on the contrary, is to match the contract as closely as possible to your needs, to avoid overpaying (this is often referred to as “software license optimization”).
It is therefore essential to determine the conditions of use in terms of the number of users, storage capacity, performance and geographical scope. Indeed, while the notion of geographical coverage may seem trivial, it is one of the most common errors in licensing, since in a structure with stakeholders located in the four corners of the globe, the information system will have to be deployed (in whole or in part) at numerous points, and the agreement will have to allow for this.
Finally, to ensure that your needs are in line with the terms of the license agreement, you’ll also need to check the rights of use. Indeed, in some cases the software will be used on its own, in others it will be integrated and form part of a product or revenue solution, and so on. You need to make sure that the terms of the license agreement match your ambitions.
4. Break down billing terms and compare offers
Between bundles, packages and other formulas, it’s often difficult to understand what you’re really paying for in a license contract. Publishers’ and integrators’ offers bundle a wide range of services, teeming with free trials and other services provided at no extra cost, which may seem like a good deal, but can quickly add to your shopping basket!
Licenses can be invoiced by usage, number of users, number of companies or establishments, or a little of everything at once. In addition, the license agreement may grant the right to have a fixed number of unique identified users, a fixed number of simultaneous users, a number of server installations, a number of fixed installations, a number of access hours, or the right to store and use a certain amount of data.
In short, before taking the plunge, you need to understand how the pricing structure works and determine which unit(s) of measurement will be applied, so that you can compare offers from different competitors more easily, and above all avoid unpleasant billing surprises.
5. Use the leverage of the commitment period and master the terms of termination
The practice of negotiating lower rates in exchange for long-term commitments is commonplace in many industries, including software, where acquisition costs for publishers and integrators have soared in recent years. Focused on growing their business, many software suppliers are willing to reduce their prices (very significantly) in exchange for a long-term commitment that will secure their ARR (annual recurring revenue). This can be a good opportunity to seize, especially for complex software, solutions and applications, which in any case require time for deployment, training and ramp-up.
Still on the subject of contract duration, it’s essential to ask yourself the question of renewal even before signing the initial contract! If you don’t, the salesperson in front of you will! What about the price of your license contract once you’ve deployed the solution, trained your users and added your valuable data? There is a strong risk that the balance of power at renewal time will be reversed, and that this “stickiness” will be used as leverage to obtain much higher rates at renewal time. Consider the possibility of including renewal rights that set prices in advance, or at least set an upper limit to a price change; if so, make sure that the renewal right can be exercised unilaterally by you, the customer.
Last but not least, think about the end of your license contract, the termination terms and conditions, as well as those concerning reversibility and the (potential) change of publisher or supplier. How will you manage this transition? If the previous provider was cloud-based, how will you move your data? If you manage to move your data, will it be in an accessible, usable format? Will your old and new systems overlap in time? Asking yourself these questions and planning contractual responses will help you avoid a few setbacks.
Conclusion:
In this article, we’ve tried to give you a few tips on how to better negotiate your licensing agreements. Of course, experience and practice not only give us a better understanding of the room for maneuver of publishers and resellers, but also enable us to capitalize on our own mistakes.
If you need more detailed support or advice on licensing, IT contract optimization or IT sourcing in general, our teams are at your service.
