Software Lists in Service Agreements – blog

Technology services agreements are complex documents and require significant detail in a number of areas. One integral component of any technology services agreement is software, which is being provided as part of, and which is being used in the delivery of the services. The development of the software schedule documenting this software is often a tedious and time-consuming task. Is it worth the effort? The time and effort invested in compiling a solid software listing will pay the following dividends:

(1) A clearer definition of scope. Invariably there is an aspect of services scope definition provided through the software utilized. Sometimes a software product directly identifies the services to be provided (for example, in an application maintenance outsourcing where the software itself is the subject of the services). Sometimes software supplements the scope of services (for example, in a business process outsourcing, where software is a tool in the broader delivery of services). In all events, an accurate software list plays an important function in scoping services.

(2) Clarity on the allocation of financial responsibility. Even with a comprehensive financial responsibility matrix, an effective software listing allows for greater granularity in allocating responsibility for third party costs.

(3) Detail as to the key component of the charges. Often software costs serve as a basis of charges, such as with a software services charge or software embedded within other pricing units.

(4) Clarification for change control. Effective change control protecting clients from undesired change depends on a clear basis from which change may arise. This includes prominently the full software environment and any associated costs.

(5) Delineates license management responsibilities. Even beyond initial allocation of responsibility for third party consents, managing license relationships relies on clear identification of the full universe of software items.

(6) Clarity of intellectual property ownership. Clear understanding of rights in and to specific software items, including rights associated in enhancements and derivative works, requires clear identification with respect to specific software items.

To illustrate the risks in this area, consider the situation where the client holds licenses for software that the incoming supplier will be providing post-transition. Failure to include a required software title on the software schedule could have significant adverse operational and financial consequences. First, failure to include the required software could result in the client facing the need to expand the scope of the new supplier’s defined services in order to avoid operational disruption by not having that software available for client use post transition. Such expanded scope itself could well involve additional charges by the supplier. Second, if the client was anticipating (or desirous of) relief from post transition financial obligations under its current license (including, potentially, license termination costs), failing to list the software title and clarify that the supplier will assume such post-transition financial responsibilities under that license could result in the client retaining financial responsibility, potentially even in addition to paying for supplier’s provision of that software title as part of expanded scope. Avoiding such adverse operational and financial risks is dependent upon both a comprehensive software schedule and appropriate contractual provisions accurately reflecting the parties’ respective obligations with respect to software appearing on that schedule.

So yes, an accurate and comprehensive software schedule is well worth the effort. As our clients work their way up the services maturity curve, a comprehensive software listing is an important tool in effectively establishing and managing service provider relationships.

Geofrey Master September 2018