Software contracts
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Types of contract
Package (or COTS Commercial off-the-shelf software)
Bespoke
Fixed price
Time and materials (cost plus)
Outsourcing
ASPs
Facilities management (service level agreements)
Advice and assistance
Consultancy
Contractors
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Types of COTS
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infrastructure items;
libraries of components;
development tools;
free-standing packages intended for a mass
market and having wide applicability;
large, complex and expensive application
packages intended for corporate use.
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Student
records
Accounts
Payroll
Personnel
Oracle
Dynix
Sequent
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Use made of COTS
• as a free-standing item;
• as part of a larger system in the
purchaser’s organisation;
• as part of a product to be delivered to a
customer of the purchaser.
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Key issues
• longevity and support:
– how long will we be able to use the software
for?
• cost escalation:
– how much will it cost over its lifetime?
• quality and liability:
– how certain can we be of its quality and who
is liable if it goes wrong?
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Example longevity requirements
• Utilities to convert data from a legacy system to a new
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format: < 1 year.
Payroll, accounting, etc: 20 years.
Strategic information systems (e.g. airline seat booking
systems): > 20 years.
Command and control systems, telephone switches,
weapons systems: 30 years upwards.
Development tools and component libraries: same as the
system they are used to develop.
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What support do customers
want?
• correction of bugs;
• Adapting to new versions of the platform;
• responding to changes in statutory,
regulatory or other requirements;
• adding new features;
• help desk;
• availability of consultancy.
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What will suppliers commit to?
• correction of bugs;
• responding to changes in statutory,
regulatory or other requirements;
– there may be an extra charge if these are
substantial
• help desk;
• consultancy.
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What will suppliers not commit
to?
• adapting to new platforms;
• adding new features.
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Threats to support
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Supplier introduces replacement product.
Supplier goes into liquidation.
Supplier is taken over by another company.
Product sells few copies so that maintenance
income is too low for supplier to provide
adequate support.
Technological obsolescence.
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Possible strategies
• A clause requiring the supplier to provide
support for some fixed period;
– Ineffective if company goes into liquidation and not
very effective without the goodwill of the supplier.
• Escrow:
– Do you have the expertise to make use of the escrow
copy?
– Is it available to all users?
• User group.
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User groups
One possible way of guaranteeing
support. To be effective, they must be:
• legally properly constituted, so that they
are a legal person;
• independent of the supplier.
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Problems
• conflicts of interest within the user group;
• lack of expertise in user group;
• user group becomes too close to the
supplier;
• user group and supplier in conflict.
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Cost escalation
• On-going costs are maintenance fees or
annual licence fees, plus possible extra
fees for major upgrades.
• COTS contracts invariably allow these to
be increased provided the supplier gives
due notice.
• There is no limit on the increase.
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The horns of a trilemma
• The product you buy is very successful:
– Continued support is assured but supplier can keep
on raising costs.
• Product is a flop.
– Maintenance income is too low for supplier to provide
proper support but the supplier daren’t increase the
charge.
• Something in between.
– Support is just about adequate and costs don’t
increase very much but supplier is ripe for takeover.
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Fixed price contracts
Structure
• short agreement
• standard terms and conditions
• annexes or appendices.
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Standard terms and
conditions (1)
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responsibilities - supplier
responsibilities - client
standards/quality management
progress meetings
acceptance
ownership of rights.
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Standard terms and
conditions (2)
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delays, changes, penalties
default and termination
limitation of liability (indemnities)
confidentiality
post-completion support
warranties
disputes
legal jurisdiction.
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Annexes or appendices
• A Customer and quotation details
– 1.
– 2.
– 3.
Premises
The supply - deliverables
Contract price
• B Project plan
• C Payment plan
• D Items supplied by client
– 1.
– 2.
Hardware (Access)
Software and manuals
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Advantages of fixed price
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requirements are specified at the outset;
reduced financial risk;
changes strictly controlled by procedure;
project control usually much stricter;
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Time and materials
• half-way between contract hire and fixed price;
• software development responsibility is similar to
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fixed price;
charging basis similar to contract hire but there
may be items other than staff time involved (e.g.
equipment);
often called ‘cost plus‘;
‘ceilings’ can be established.
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Advantages of time and
materials
• requirements not so rigidly specified;
• modifications during project - perhaps
essential;
• price will not be inflated by a contingency
allowance to compensate for the risk;
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Fixed price contracts in C3
- command, control,
communications: a
cautionary tale
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Protagonists
• Police Force
• Software House
• Hardware manufacturer
• Software shell
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Objective
Incident management, that is:
• maintain real-time record of location of
police resources;
• accept and log reports of incidents;
• despatch appropriate resources to the site
of each incident;
• produce reports about incident handling
performance.
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What happened
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Hardware didn’t perform.
Software shell didn't fit.
Software house cut corners.
Police force was over-ambitious.
Project was late.
Specification was reduced.
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Lessons
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need a proper (honest) feasibility study;
ensure hardware is up to it;
ensure software is capable;
requirements specification - match budget
constraints;
• keep ambition reined in;
• perhaps an independent audit.
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Outsourcing/
Facilities Management
• outside contractor provides all IT facilities;
• Takes over existing personnel;
• plans services in collaboration with
client/user;
• service level agreement is signed;
• contracts are usually long;
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Benefits of facilities
management
• Contractor is (or should be) an expert in the
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provision of IT services, which the ordinary user
never can be.
Contractor should be able to get better terms for
hardware and software purchases.
Contractor can offer better career prospects to
IT staff.
Contractor has high-powered technical back-up
available when needed.
Generally less hassle!
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Disadvantages of FM
• IT may be a major element in your
corporate strategy and you are handling
control of it to someone else!
• The client needs to invest substantial
management effort to ensure that FM is
successful.
• The benefits don’t always happen but the
costs do.
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Consultancy
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relatively simple
end product is a report or document
sums of money involved are small
confidentiality
terms of reference.
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Contract hire
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Agreements are very simple.
Liability is limited.
Payment is "per diem“.
"body shopping“.
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