A glossy website, a smooth sales pitch, promises of an all-singing, all-dancing software solution which will solve a problem that is giving you heartburn, or which will deliver enormous efficiency savings. Each are common hallmarks of the software sales cycle, particularly where a cloud environment is involved.
But how do you ensure that you are getting what you think is being promised?
Your contract with the supplier is a key tool which can be used to reduce risk and to hold the supplier accountable for the delivery of the promised solution. Software contracts often take one of two forms:
- An agreement which is sent for you to sign; or
- A set of terms which are presented as part of a sign-up process, which form the basis of your contract once accepted (which can be by submitting your request for the solution).
Whichever format the supplier elects to use, there is always an opportunity to consider the terms of the contract before you enter into it. You should of course always do so, as part of your due diligence process and to ensure good contract governance, but this step is often overlooked, particularly where big promises are made during the pre-contract sales phase.
So, what should you look out for? Whilst this is no substitute for a full legal review of the supplier’s terms, the following key themes are central both to understanding your contractual arrangement with the supplier and to ensuring that you hold the supplier to providing what you expect of them.
The implementation project
If there is to be a set-up phase before you can use the solution in anger, particularly if the solution you are procuring is bespoke, there are a few things to look out for, in particular:
- How will completion of the project be signed off? Think whether you need to include an acceptance testing regime and sign-off process to ensure the solution which is handed over is as you expect it to be; and
- What commitment (if any) does the supplier give in relation to how long the project will take? An indefinite period gives you no certainty that the solution will ever be delivered, you could try to push for penalties for late delivery if the solution or project timetable are of critical importance.
The length of your commitment
Software solutions which are sold on a subscription basis often have a fixed initial term, followed by an automatic (usually annual) renewal.
A longer initial term often helps drive a better price (for you) with the trade-off being that you are locked into an agreement with no easy way out unless the supplier breaches the agreement or becomes insolvent.
Scope of licence
Does the licence allow you to use the solution as intended? Check to ensure any limitations on use such as (if relevant) the number of permitted users and restrictions on the amount of data that can be uploaded, downloaded or processed is suitable for your needs without incurring additional overage charges.
If you need other group entities to use the solution, the default position is usually that they are excluded and either need to become a party to the agreement or enter into a separate arrangement with the supplier to be able to use it.
Fees, payment, and refunds
Check when recurring charges will commence and when they are to be paid. Typically, subscription fees are to be paid annually in advance, with the first payment due on execution of your agreement with them. This won’t work for the customer in all circumstances, such as if the solution is new to market or is otherwise untested in the country in which you operate, or where you can’t use the solution immediately – such as where implementation or configuration services are required before the solution can be put into live use.
Software licences are often sold on the basis of included seats, or volume of data, or some other metric relevant to how the software is to be used, with additional charges payable if the relevant limits are exceeded. Making a judgment call on your likely use before entering into the agreement may help alleviate budget tension down the road.
Software businesses commonly include a right to unilaterally increase their fees, and this often automatic without requiring your consent or even giving notice to you. Careful scrutiny is required to ensure you avoid budget shocks or can migrate to an alternative solution should the commercial viability of the arrangement become questionable.
The generation and retention of cash are the raison d’être for the vast majority of tech business; it is unlikely that you will have any right to a refund for the fees you pay unless you negotiate the refund into the contract. There are always strong arguments however for you to have a refund of prepaid fees where your arrangement with the provider terminates and the supplier is at fault.
Support services and service levels
Always ensure that the supplier has a contractual commitment to provide you with support services in case something goes wrong. Some suppliers may set this out in a separate policy document which isn’t referenced in your agreement and therefore does not form part of it. This will often be insufficient as you will find it difficult to enforce the policy without a contractual commitment to it.
Service levels, or commitments to the availability of a software solution and the supplier’s commitment to responding and resolving service outage are one of the few ways in which a fashion business can hold the supplier’s feet to the fire to ensure they provide the level of service you expect to receive. You should always ensure that service levels are included, and that the supplier is accountable for failure (usually through the inclusion of express termination rights linked to service level failures). Some providers may include service levels which are of little benefit, for example where time periods are referred to as estimates or where downtime for emergency maintenance (which is usually only required because there has been a service level failure!) is excluded, meaning the supplier isn’t really accountable if it doesn’t keep to them.
In part 2 of procuring software solutions for fashion businesses – are you sure what you are getting? We will consider termination, managing risk, and how your data is handled.
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