An association software contract isn’t easy reading. However, if you dedicate attention and time to reviewing a contract before you sign, you’ll have peace of mind from knowing you’re making an informed choice and a good business decision.
My previous post in this series focused on 5 questions to answer before signing a software contract. Let’s dig deeper into some sections of the contract that usually need extra clarity and consideration.
TIP: During the entire contract review and negotiation process, keep these two principles in mind:
- Don’t assume anything. If something isn’t explicitly mentioned in the contract, the vendor won’t be responsible for providing it. Insist they change the contract language to address your critical concerns.
- Pause before signing. Don’t rush into things. Take time to review every section of the contract and ask for clarification where necessary.
Know what type of software you’re being promised.
Are you signing a contract for a traditional software purchase or a cloud licensing and delivery subscription? Traditionally, software has been sold as a product. The software was installed on premise, that is, on your association’s server and/or desktops. You owned the license(s) in perpetuity.
You can still purchase software in this way, but often an organization wants the software hosted off-premise by the vendor or a third-party. In this case, in addition to purchasing the software up front, you also pay a monthly hosting fee.
In the association technology market, increasingly the trend is going toward a Software as a Service (SaaS) model, a subscription licensing and delivery model. You have access to the software only for the terms of your contract with the vendor. The software is hosted off-premise by the vendor or a third-party. Hosting, maintenance, updates, and support are typically bundled as part of your monthly fee.
Pay attention to these tricky areas of the contract.
Make sure you’re getting what you’re expecting. Does the contract completely match up with the vendor’s proposal and sales promises? Make no assumptions unless you see it in black and white.
Change orders. Look for language saying that when changes to scope arise, the vendor will create a written change order for your review and written approval before proceeding with any work. The change order should clearly define its scope as well as any impacts to the project’s overall timing and costs.
Acceptance criteria. The contract must stipulate, and both parties must be in agreement on, what is to be delivered (scope) and how you will both determine that the vendor is delivering the scope (acceptance criteria).
Expenses. The contract should make it clear that any vendor expenses (such as travel expenses, as in the example below) comply with your organization’s policies.
- Expenses must be reasonable, for example, coach airfare.
- The vendor must track expenses.
- The vendor must submit expenses for your review upon request. You could also add language to the contract requiring any expense over X dollar amount requires your prior written approval.
Project personnel. You should have the ability to review and approve key vendor personnel assigned to your project. Look for a clause stating that you can deem personnel unsuitable and the vendor will replace them.
Costs. Are they correct? If someone unfamiliar with the project picked up the contract would they understand what you’re purchasing and the costs?
- Are payments tied to project milestones or dates? Ideally, you want to tie payments to project-deliverable dates, for example, 15% upon completion of end-user training.
- Is payment fixed, not-to-exceed, or based on time and materials?
- Are the invoice terms for 15 or 30 days, sometimes referred to as net 15 or net 30? When a vendor mails an invoice (instead of emailing it) be sure the trigger for paying the invoice is based on your receipt of the invoice, not the invoice date.
- What is the procedure for dispute resolution if you see an error on the invoice? What amount of time do you have for raising an invoice concern?
Data. When your data is stored on servers not in your control, for example, servers hosted by your SaaS vendor, you need to inquire about (and get in writing) the host’s backup policy. How often do they back up your data and are they incremental or full backups? How often will they test and restore data? Make sure their recovery time objectives are defined in the contract.
Don’t be surprised to see more than one contract.
In the past, you typically signed one contract for the software and related services. Now, however, most vendors provide a Master Service Agreement that covers warranties, confidentiality, intellectual property ownership, payment terms, indemnification, dispute resolution, governing law, and other general terms; as well as separate Statements of Work (SOW) that address licensing, hosting, support, service-level agreement (SLA), and implementation services. You could have even more contracts if you’re working with a separate company as your implementation partner.
TIP: When possible, have a design study services contract that’s separate from the implementation services contract.
Your vendor may use a different term for this phase of the project, for example, instead of calling it the “design study” phase, they may call it the “discovery,” “requirements analysis,” or “system requirements analysis” phase.
Having a separate design study services contract will ensure you and the vendor establish clear expectations as to the specific scope of the implementation project and costs before you agree to purchase the licenses and contract for all of the implementation services that may have been identified in the sales proposal.
This approach also provides an extra level of protection. For example, imagine if the design study phase is completed and you find out the project costs are 150% over what you had budgeted based on the sales phase.
Some vendors don’t offer a separate design study services contract but it doesn’t hurt to ask. If you can’t get a separate contract, insert language in the contract permitting you to terminate after the design study phase without further obligation.
My next (and last) post in this series will cover the delivery and acceptance phases of the project.
Editor’s note: This post is not intended to be a substitute for legal advice. Always seek experienced legal counsel to address risks based on your association’s own, unique circumstances.
Flickr photo by acina