Server platforms Toolkit

A clause for alarm

Dawn Kawamoto and John Borland ZDNet US

Published: 17 Jul 2002 08:50 BST

Given the multimillion-dollar costs of today's software deals, customers often devote surprisingly little time and resources to scrutiny of contracts that are rife with obscure terminology, vague expansion charges, and mind-boggling license conversions. As a result, they end up paying in ways they had never imagined long after the deal is signed.

California, for one, is trying to extract itself from a $95 million software deal with Oracle that has collapsed into controversy amid allegations it will cost the state millions rather than save money. Toronto faces similar problems as it attempts to disengage from its $11 million contract with the database giant.

In those cases, the issues involved the purchase of more software than auditors later determined would be needed. But the controversies they generated underscore the need for customers to know exactly what they are buying, especially when the details of corporate software contracts are so complex.

"I can't say it enough: definitions, definitions, definitions," said Frank DeSalvo, research director for technology consulting firm Gartner. "An enterprise deal to a vendor is one thing -- and to a customer it may be another."

Understanding those definitions, however, is easier said than done for the untrained. The unique nature of software makes it difficult to price: Products can be copied from one computer to the next, and a piece of software might be used through the Internet by many people around the world.

Despite such complications, customers can avoid costly mistakes by taking a few key measures. In interviews with CNET News.com, analysts and consultants offer the following explanations and advice for companies and government agencies negotiating large software contracts.

* "Standard" contracts are often one-sided agreements favoring the supplier. Customers should not sign these without thorough review by an attorney, even if the sales representative presents it as a way to get the ball rolling or is pressuring for immediate action.

Stephen Davidson, an attorney and chairman of the intellectual property and information technology law department at Minneapolis-based Leonard Street and Deinard, cited one case in which a company temporarily used licensed software on a computer that was more powerful than noted in the contract. That put the customer at risk of triggering an expansion charge of nearly $1 million and a threat that the license agreement would be terminated if the fee was not paid.

* "Basic coverage" is the bare-bones maintenance support. A shift is under way to charge premium fees for support levels previously considered basic coverage. When renewing maintenance contracts, it's important to ask what basic coverage now covers, rather than assume it's the same as before.