Software is fundamental to the way many businesses operate. Whether it is used to manage customers, process payments, store documents, manage employees or support day-to-day operations, businesses are increasingly dependent on third-party software providers.
The decision to sign up to a new software platform can therefore have consequences beyond the subscription price. The contract determines what the provider is required to deliver, how your data can be used, and what happens if the service does not perform as expected. Before signing, businesses should consider the following key issues.
What are you actually signing up for?
Not all software arrangements are the same. A business may be buying a traditional software licence, subscribing to a cloud-based Software-as-a-Service (SaaS) platform, or entering into a wider agreement covering software, implementation, support and consultancy services.
It is important to understand exactly what is included within the price. Are there limits on the number of users? Are certain features only available at an additional cost? Is technical support included? What happens if the business needs to increase its usage? Businesses should also check whether the provider can change the software or its functionality during the contract term. A right for the provider to make changes may be reasonable, but there should be appropriate safeguards where those changes could materially affect the business.
What happens when something goes wrong?
Software failures can quickly become business-critical. A few hours without access to an important system can have a significant operational and financial impact. The contract should therefore be reviewed carefully for service levels, availability, and support obligations. This may include minimum uptime commitments and specified response times for different categories of technical issue.
Businesses should also consider the remedies available if those commitments are not met. A service credit may provide some compensation, but may be of limited practical value if a system failure causes substantial disruption. For vital systems, businesses should consider whether they need stronger contractual remedies or contingency arrangements.
Who owns the data and intellectual property?
Data and intellectual property are often among the most important assets involved in a software arrangement. A customer will generally want to retain ownership of its own data, while giving the provider the rights it needs to provide the service. The contract should clearly distinguish between customer data, the provider’s software and any intellectual property created during implementation or customisation.
Businesses should also consider what happens to their data when the contract ends. Can it be exported in a usable format? How long will the provider retain it? Will there be a charge for retrieving it?
Where personal data is processed, the parties will also need to consider their respective obligations under UK data protection legislation, including whether an appropriate data processing agreement is required and whether personal data will be transferred outside the UK.
How easy is it to leave?
It is tempting to focus on getting a new system up and running and leave the question of exit until later. However, software can become deeply embedded in a business, making it difficult and expensive to change providers. Businesses should check the contract term, renewal provisions, and notice periods. Automatic renewal clauses can be particularly important where notice must be given several months before the end of the term.
Consideration should also be given to what happens on termination. The contract should ideally provide a practical mechanism for recovering data and transitioning to an alternative provider where necessary.
Is the liability position appropriate?
Software providers will commonly seek to limit their liability. This is not unusual, but businesses should consider whether the proposed limitations reflect the risks involved.
For example, a liability cap based on the fees paid under the contract may be relatively low compared with the potential consequences of a significant system failure, data breach or loss of access to important business information.
Businesses should also look carefully at exclusions of particular types of loss and whether important risks, such as confidentiality breaches, data protection breaches, and intellectual property infringement, are subject to separate protections.
The cheapest contract is not always the best contract
The headline subscription price is only one part of the decision when selecting software.
A well-negotiated software contract should reflect how important the system is to the business and allocate risk appropriately between the parties. This is important where the software will hold valuable data, support critical business functions, or become difficult to replace.
For businesses investing in new technology, the question should therefore be not simply “Does the software do what we need?”, but also “Does the contract adequately protect our business if it doesn’t?”