Typical Key Terms on Large-Scale Software Contracts

Reviewing a software contract, or just wondering what the key terms of such a contract might include? I had the opportunity to prepare a high-level punch list for a large software deal, that involved a software vendor pushing out software to a large franchise. This makes things complicated, given you have to contract with both the franchiser and the individual franchisees.

The punch list I used is as follows:

• Products & Services of Deal – Define specifically what is being purchased. Include Quantity and version(s) of software. Update privileges (i.e. for how long and how much?). Training specifics. Level of other party’s involvement on implementation and rollout.
• Incorporation by Reference of Support Contract. Provide as attachment. Make sure you define the level of support and service levels, if any. Make that a separate agreement.
• Parties to the Contract – Who is ultimately responsible for paying bills and enforcing the contract??!? Need to think this through. Are the individual locations franchisees or a combination of corporate and franchise locations? If so, need to require the main corporate entity to enforce relevant terms of THIS contract on franchisees, so you have someone to sue if a franchisee decides to make copies of your software (for example).
• Overall Requirements – What specific requirements do you have to make this deal work? For example, must all locations have an Internet connection? An IT person? A firewall? Specific versions of the OS, Computers or other needs? A form they fill out? Must the main corporate entity approve all change requests and/or new locations?
• General Procedures – Who at the other party contacts you? Need to make sure you receive VALID requests (i.e. something the corporate client cannot dispute):
  • How are you notified of a new locations and/or franchisees?
  • How do you want individual locations to contact your support team? Should they go through the corporate IT department first?
  • How are change requests dealt with?
• Pricing and Payment Terms & Schedule – Down payments, installment payments and/or payment schedule, contingencies, penalties for non-payment / delayed payment, etc. Does the price depend on a certain number of units purchased within some time frame?
• Ad Hoc Services and/or Development
  • Procedures – Requesting, approvals, testing, rollouts, warranties / support, etc
  • Conditions – Must every location incorporate a development change to maintain standard software versions throughout? What happens if one or more locations don’t follow the rules? What other conditions do you need to make this manageable and profitable?
  • Defect Resolution – What is your response-time to alleged bugs? (I have an excellent procedure and system for this, if you’re interested. Let me know. Worked well when I was a consultant managing large software development deals).
  • Other stuff: fee schedules, ownership of work product, etc.
• Dispute Resolution – Procedure to resolve disputes between you and individual franchisees, as well as between you and the main franchiser.
• Termination – Under what conditions (if any), what happens, what is returned to you (i.e. equipment, money, software, etc?), potential money refunded, etc.
• Standard Contract Stuff – Limitation of Liability, Warranty, Indemnities, etc.

If you can answer these questions, from a business perspective, you’re quite far in your drafting of a contract. In drafting a contract, these questions need to be answered. Having them answered before you engage an attorney will help you save a significant amount of money.