Negotiating software contracts is a necessity for individuals and businesses that are planning to invest in any type of software.

Project Variables

The three variables associated with every project are:

  • Scope
  • Time
  • Money

It's important to give yourself plenty of time to review your options and make a decision. You should also surround yourself with people who can give you good advice about negotiating a software contract. This type of negotiation is both an art form and a science. Having time to get your facts straight and make a decision is helpful, but the process of negotiating a software contract also involves managing other people. You must manage those within your organization as well as those working for the software vendor and other external suppliers.

Many people buy based on the excitement of getting something new, a feeling they have in their gut, or a pressure or compulsion they feel to get something done as quickly as possible. Instead, they should focus on facts and logic when making a decision to invest in software. With the right preparation, proper education, and good management of the purchasing process, you can reduce the emotions and distractions that can play a role in decision-making. As a result, you can maximize your negotiating success and increase your value within your organization.

Software Contract Negotiation Tips

The first recommendation in negotiating a software contract is that you educate the stakeholders in your business. You must make sure that the stakeholders understand the differences between bad and good procurement management. The executives of the company should focus on managing suppliers and sourcing products, but they may forget what is required of them when they're facing an upcoming deadline or interacting with a forceful sales representative.

When educating your stakeholders, it's best to provide information about a previous deal that was negotiated poorly. Using a past example will clearly show what is wrong with the company's existing procurement management process.

When negotiating a software contract, you can never be too prepared. It's just as important to prepare for this process as it is to plan a meal or get ready to participate in an athletic competition. The person who is most prepared tends to have the most success.

When you're facing a new supplier, start by doing research about the supplier, the market, and the competition. Practice due diligence as you clarify the needs of your business, including what, why, and when to buy. Part of the preparation process should involve a full review of your company's database of contracts. Use previous contracts to compare past deals with the current potential deal.

Outline the priorities of the company and what you might be willing to concede. Look for ways you can leverage your buying power. It's also important to look at the entitlements within the contract and compare those to the planned deployment of the product.

Another tip is to gather plenty of relevant information that will support your decision. External advisors can provide a lot of information, especially when they have been through the process of negotiating a software contract. Gather information from contributors within your company as well to help maximize the opportunities for negotiation. Use this information to leverage internal knowledge, get outside advice from a market analyst or someone who has used the supplier in the past, and involve the right people in the process.

One of the easiest negotiation points is the initial fee for the software, or the one-time cost. Every business wants to minimize the initial cost to acquire software. In order to negotiate this fee, you will need to understand:

  • The demand for the software
  • The financial situation of the vendor
  • The existing backlog of the vendor

This information will provide more insight into whether there is any wiggle room in the one-time fee for the software. You may want to try to negotiate the cost of ongoing maintenance as well, since this is something that can quickly add up and become a high cost for your business over time.

The cost for ongoing maintenance is important and inevitable because it entitles you to support and upgrades. However, you may have some negotiating power if the contract outlines the option to raise the annual cost of maintenance. Limit this option by restricting how much the price can increase, such as by a percentage cap or the consumer price increase.

If you need help with negotiating software contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.