Computer Says No!

clarkekannIs your business considering implementing a new software or IT services package? Be it a bespoke agreement to develop software specifically for your business, or a more generic solution, Corporate & Commercial Partner and IT specialist, Peter Karcher, points out 5 critical contract issues to keep in mind when negotiating with the developer or software provider:


Most “off-the-shelf” software products have clearly defined licence terms that limit your usage rights, referable to “internal business purposes only” or a limited number of end-users. Where software is being developed just for you, ownership of the new IP becomes very important. While developers will not want to sell their core software platform, consider whether you should acquire outright ownership of any modifications or modules, which are created specifically for you, to ensure your continued ability to use the software, and to prevent the developer licensing it to a competitor.


Often an IT product will require the use of other software tools or platforms. Apart from ensuring there are no hidden costs, you should ask the developer how they will continue to operate their product if the third party software later becomes unavailable. Your contract should place responsibility for maintaining any necessary third party software on the IT provider.


Usually an IT provider will “support” their software throughout the licence term, sometimes in the form of a separate “service level agreement”. The provider’s obligations need to be closely scrutinised, including matters such as response times, additional charges, as well as considering what right you have to terminate the overall arrangements if the software or support services are not up to scratch.


Depending on the nature of the services being provided, your IT provider may be responsible for storing your customer, financial and other valuable data. Your contract needs to place obligations on the provider to keep that data secure and to comply with any applicable privacy laws that have recently been beefed up.


Too often clients come to us after the fact and ask how they can continue using or developing a software product after the IT provider has gone into liquidation. This usually requires access to the relevant “source code”. The only way to guarantee that is for both parties to enter into an “escrow” agreement with a third party escrow provider, under which the escrow provider will release a copy of the source code in the event of the licensor’s insolvency.


PETER KARCHER // Corporate & Commercial Partner

T 61 2 8235 1218


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