Jane Disbrow

1
Negotiating a CRM Software License Agreement

• Jane Disbrow

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2
Negotiation Is Key

• Choosing a vendor before negotiating the software
  license agreement is dangerous to the financial
  health of the enterprise.
• Do the same due diligence on the contract terms
  and conditions as should be done to determine
  functionality requirements.

3
Key Issues

• Who should be involved in the negotiation and
  what process should be followed?
• What are some of the license models being used
  by software vendors today, and what are the
  advantages and disadvantages of those license
  models?
• How can enterprises spot the problem clauses
  often found in license agreements?

4
Entire Agreement Clause

• This agreement replaces and supersedes any prior
  verbal or written understandings, communications
  and representations between the parties and
  constitutes the complete agreement between the
  parties. No other act, document, usage or custom
  shall be deemed to amend or modify this agreement
  unless agreed to in writing and signed by both
  parties.

Contract Reality Warranty is often just 90 days
and states that the software will perform
substantially in accordance with the
documentation, and the vendor must be notified
of any nonconformance within the warranty
period which is not practical if there is a
long implementation.
5
Getting Started Who Should Negotiate?

• Technology negotiation is a specialty
• It must include negotiation skills.
• Legal will usually focus on legal terms and
  conditions.
• Business issues related to technology need to be
  covered in the license agreement.
• Technical terminology must be understood by the
  negotiators.
• The direction of the enterprise and the IT
  division must be taken into consideration.

6
Responsibilities of Software Negotiators

• Research and obtain financial information about
  vendors.
• Assist with RFP preparation include contract
  terms in the RFP that are required by the final
  agreement.
• Review RFP responses for issues to include in
  final agreement.
• Review any current contracts with any possible
  vendor to see if they can be used for the new
  deal, or if the contract will need to be redone.
• Read potential contracts and inform management of
  major problems.
• Negotiate the contract as the central point of
  contact for all parties legal, business units,
  technical.

7
Who Should Be Part of the Negotiation Team?
Technical
Negotiator
Business
IT Apps.
Legal
Primary Point of Contact With Vendors Ensuring
All Issues Are Documented in Contract Final
Price Negotiation Coordinating the Negotiation
Process With All Team Members
Database Requirements Hardware Requirements Futu
re Direction of Technology
Business Requirements Functionality Business Pro
cess Changes
Installation System Integration Development Fu
ture Direction of Applications
Limitations of Liability Enterprise
Name Subsidiaries Affiliates Mergers/ Acquisition
s/ Divestitures Legal Risk
8
GOAL Equitable Contracts Between CRM Vendor and
Customer
Customer
Vendor
Users can balance the scale by focusing on such
things as

• Usage rights
• Price protection
• Maintenance caps

• Financial due diligence
• Clarifications with examples
• Legal review

9
Trends in CRM License Agreements

• Buyers market for current CRM deals
• More-complicated license models
• Greater discount for initial license, but higher
  ongoing costs
• Licenses as part of a package deal that will
  include services, implementation
  and training

10
CRM Pricing Survey Results, November 2002
Results from 89 CRM software vendors on their
licensing models
Percent Count Answer 42.7 38 Named
user 65.2 58 Per module 20.2 18 Module
per named user 27.0 24 Concurrent
user 9.0 8 Revenue or other financial-based
metric 3.4 3 Number of employees
7.9 7 Transaction-based pricing 12.4 11 Rol
e-based pricing (professional, employee
self-service, business partner) 13.5 12 Size
of hardware platform 36.0 32 Other 237.3
211 Multiple license models per vendor
11
License Models
Named User Many vendors offer some form of this
license model for their CRM software. It is
usually easy to understand but may be costly if
there are many occasional users. Concurrent
Users Usage rights are often ill-defined in the
contract. Role-Based User Can be costly if not
well-defined as to usage rights, and there are
not rights to convert from one role user to
another. Business Metric Often ill-defined
consider what should be eliminated from and/or
added to the business metric. Transaction-Based
Metric Can be difficult to estimate usage in
advance. How it is measured is very important.
12
Problem Clauses in CRM Licenses
Gotcha !!!
13
Charges for Changesin Technology
Example of onerous term and condition If the
licensee decides to change from one supported
database to another supported database, the cost
will be horrendous.
Likely way presented in the contract Database
Oracle (or any other specific database listed)
Example of solution (not legal advice) This
software is not subject to any upgrade,
downgrade, usage or transfer fees within the
organization. Licensee may transfer this software
at no additional cost to any hardware platform,
software operating system or database that the
vendor supports for this software.
14
Reinstatement Fees
Example of onerous term and condition If the
licensee drops maintenance, then reinstatement
fees are subject to whatever we want to charge at
the time, and the licensee will have absolutely
no leverage.
Likely way presented in the contract Reinstateme
nt fees are subject to then-current policies in
effect.
Example of solution (not legal advice)
Licensee can resume software support and
maintenance for lapsed periods by paying licensor
an amount no greater than the back support fee
that would have been due if software support and
maintenance had been continued over the lapsed
period.
15
Software Compliance
Example of onerous term and condition We are
going to send you software that you are not
licensed to use. If you use this software in
error, you will be out of compliance with this
contract, and woe to you if we audit.
Likely way presented in the contract Licensee
shall not access or use any portion of the
software not expressly licensed and paid for by
the licensee.
Example of solution (not legal advice) Licensor
shall not ship any software to licensee that
licensee is not authorized to use.
16
Downsizing of Usage
Example of onerous term and condition During
the sales cycle, we sold you more software than
you can use. Now that your enterprise is facing
budget cutbacks and a large reduction in the
workforce, we still expect you to pay for all
licenses and modules whether you need them or not
because we need the money too.
Likely way presented in the contract XXXX (not
addressed at all)
Example of solution (not legal advice) Licensee
shall have the right to remove unused licenses
and modules from support at the renewal of the
maintenance term, with a corresponding reduction
in ongoing maintenance and support costs.
17
Indemnification Clause
Example of onerous term and condition Software
vendor may, in its reasonable judgment and its
sole option and expense 1) obtain for licensee
the right to continue to use the software 2)
replace or modify the software so that it becomes
non-infringing or 3) terminate the license for
the infringing software and return the license
fees paid for such software prorated over a
five-year term.

• Four problems with the above clause
• Software vendor may This does not set very
  high requirements for the vendor. It may or it
  may not do something. Shall is usually
  standard.
• It should be required to go with Option No. 1
  first, as continuing to use the same software
  would be easier for the enterprise.
• Only the infringing software will be reimbursed
  maybe just one module. A complete system was
  licensed.
• License fees are prorated for five years. The
  replacement cost would be more than this. Try for
  a full refund of all software.

18
Its time to play Whats Wrong With This
Order Form?
19
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
20
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
21
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
22
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
23
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
24
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
25
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
26
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
27
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users





1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
28
Whats Wrong With This Order Form?
Anytown, USA
Designated Location
Any Enterprise Corporation
Business Unit
Server
Computer Environment
Client
AS400 S/N 12345
Hardware Manufacturer
IBM PC or compatible

Software
Windows NT application server
Operating System and Version
Windows NT
HP Unix database server
Database Manager and Version
N/A
Oracle 8i
500
Number of concurrent users
1
Number of servers
System and Item Description
License Fee
Continuing Support Fee
Module A
Included
Year 1
Module B
Included
Included
Module C
Included
Module D
1,500,000
300,000
License fee
30,000
6,000
User Fee for 500 Concurrent Users
1,530,000
TOTAL LICENSE FEE
(430,000)
(Less) Discount
1,100,000
DISCOUNTED LICENSE FEES
350,000
Implementation (estimated)
_____________________________
____________
___________________
Vendor signature
Licensee signature
29
Developing a Checklist

• Why a check list is important

Saves time can be reviewed quickly to see the
terms and conditions to be added to a license
agreement Can include terminology that can be
repeated in license agreements again and again,
and be pre-approved by legal Prevents overlooking
some major clauses Missing terms and conditions
often cause more problems than terms and
conditions that are included
30
Important Terms and Conditions Often Missing From
Contracts

• Before signing on the dotted line
• Perpetual license
• Escrow clauses
• Audit protection
• Mergers, acquisitions and divestitures
• Right to change location, platform, operating
  system or database
• Service-level agreements and entitlements for
  maintenance
• Broad usage rights parent, affiliates,
  subsidiaries

31
Include as Part of the CRM Contract

• RFP Response

• Presentations

• Oral Promises

• Support Issues

32
Recommendations

• Use trained negotiators for the CRM software
  license agreements.
• Establish best-practices procedures for the CRM
  software procurement and follow them.
• Use a team approach to negotiation to ensure that
  all requirements legal, procurement, technical
  and business are taken into consideration.