Software Contracts: Everything You Need to Know
Software contracts outline the legal terms and conditions of using a specific type of software, whether for business or personal use.3 min read
Software contracts outline the legal terms and conditions of using a specific type of software, whether for business or personal use.
Simple Rules for Negotiating Software and IT Contracts
The first rule is that you shouldn't pay for maintenance or support on the product before it is necessary. On the first day that the software is set up, you obviously won't need support or maintenance because you're not actually using the software yet. You'll have no need for support on the product until the software company's implementation or customization team has finalized the product, which can take months or longer. It makes no sense to pay maintenance fees for a product that is not ready to be used.
As upgrades and updates become available for the software, the software company's team can take care of the installation process, which should be part of the customization process. If any type of annual or monthly maintenance fee is enforced prior to completion of customization of the software, you could end up paying for a service you won't need or use. When negotiating a software contract, you should try to delay the start of support and maintenance fees until after the system has gone live and the vendor has customized it for your needs.
Within the contract, you should request that the vendor defines the go-live date as the date on which the customization process is complete or you accept the final product after it has been customized. Upon approval, the maintenance contract can begin on the go-live date. If you can negotiate a reduction in the maintenance and support period timeline, you could end up saving quite a bit of money.
One exception to this rule is if your software vendor has a good reason to start the maintenance period prior to the go-live date. For example, a vendor might set a lower price for the software with a plan to make up the cost difference in the required maintenance fees. In this case, a maintenance term that is shorter or starts later could result in the software vendor losing money on the sale.
Some vendors also need support or maintenance during the customization process. Members of the software maintenance team might have access to make changes or handle tasks that the team assigned to customization isn't able to handle. It's smart to listen to the software vendor to get a better idea of why a maintenance period starts early. You can always ask questions when negotiating a software contract. You could find out that the vendor doesn't have a good reason to start fees before the software goes live.
Don't Use NDAs for Data Security
The next rule comes from a common mistake among software buyers: relying on nondisclosure clauses or agreements (NDAs) to protect your personal or business data. An NDA is designed to protect your trade secrets, but not to protect any private data accessed or held by the software vendor. A nondisclosure clause in a contract states that the signer won't share or use any confidential information for purposes other than what is outlined and intended in the terms of the contract.
An NDA works well for protecting:
- Customer lists
- Secret recipes
- Source code
- Business plans
An NDA doesn't offer sufficient data security terms. The terms in a standard NDA don't typically include information about procedures that will protect information. Instead, the language is generic and talks about taking reasonable precautions. What you should use is a data security clause, which is specifically designed to protect data and the procedures involved with securing data.
A data clause will often require that employees must have background checks and also outline the response and notification plan for a data breach. One of the most important things to include in a data clause is how data security will be externally audited. Some examples include:
- SOC 2
- ISO 27001
A data clause should also address how compliance will be enforced with any privacy policies, laws, and e-discovery policies. The e-discovery policies in a data clause will cover how and when the software vendor can transmit data to another party in the event of a lawsuit or other legal action.
If you need help with 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, Menlo Ventures, and Airbnb.