FEBRUARY/MARCH 2004
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Maintenance and Support Agreements (Part 2):
Issues to be Considered in Negotiations
by William S. Wyler
Schwartz, Manes & Ruby
Last month, ITechLaw pointed out that negotiating an effective Maintenance and Support Agreement ("M&S") is as vital to the purchase of technology products as the actual purchase or licensing documents. This month, ITechLaw will look at specific issues which should be considered when negotiating Maintenance and Support Agreements.
Negotiate M&S Agreements at the Same Time as the Acquisition Agreements. The M&S agreement should be negotiated and signed at the same time as the acquisition agreements are negotiated and signed. Once the acquisition documents are signed, the negotiating leverage for the M&S agreements are gone. Once signed, the purchaser has already committed to vendor's system or software, so the vendor is no longer willing to take negotiating positions designed to "get the business." The vendor has the business and is now interested in making up for the price cuts and service additions made during negotiations for the acquisition. If the software or system includes any proprietary material of the vendor, purchaser's position becomes even weaker after the acquisition agreements are signed, since it could be impossible to find anyone else to maintain the vendor's proprietary works.
Preventative Maintenance and Remedial Maintenance. In reviewing an M&S agreement, there are a many issues to be considered. Of all of the issues, the most important is the type of maintenance offered. Is the maintenance only to repair a defect or bug in the product, called remedial maintenance, or is it an also an ongoing program of preventative maintenance, in addition to remedial maintenance? Preventative maintenance has several advantages. Since it is not provided on an emergency basis, it can be done at scheduled times to cause the least business disruption. Since all software and systems develop inconsistencies over time, it is preventative maintenance which is designed to remove these inconsistencies, as well as provide an opportunity to install software fixes and software updates.
An effective program of preventative maintenance will help prevent, or at least reduce, the likelihood that there will be a need for emergency remedial maintenance. Scheduled preventative maintenance can help repair the small problems before they mushroom into large problems. Effective preventative maintenance should include scheduled running of diagnostic software.
Online Maintenance. One effective method which can help hold down the cost of maintenance, especially for software, is online maintenance. In most cases, no one needs to come to the server location, which will reduce intrusions into work efficiency, as well as reduce costs. Often, an onsite visit will entail additional charges, even if there is an M&S agreement in place. Through online maintenance the services provider can usually diagnose and repair a problem or even download new software, if necessary. For providers that offer this form of maintenance alternative, it makes life easier. For end users, it makes life cheaper, less intrusive and less disruptive. If online maintenance is available for some or all problems, it should be adopted.
The M&S agreement should specify the nature of the online connection and the network requirements for use of the online service. Occasionally, online service may require the purchase of new hardware or software. Sometimes, meeting the requirements for the online connection can be a significant expense. This cost should be known up front, before an agreement is signed, so that a determination can be made as to whether it is a cost effective step, over the long run.
Response Time. One of the more important issues for review is contract language regarding remedial maintenance response time. Remedial maintenance is required when something goes wrong with the system. If the software or computer system covered by the M&S agreement is central to the business, it is vital that response be both prompt and effective. Some M&S agreements will include a "respond within" time period, measured from the time of notification of a problem. If no "respond within" time is included in the agreement, attempt to negotiate for a response time. The response time sought is dependant on how vital the particular system or software is to the business.
Unfortunately, setting a response time does not indicate when the problem may be corrected. This is much more difficult to negotiate and add into an agreement, since there are easy fixes and very difficult fixes. The best language to use, if the service provider will agree, is that the service provider must use its "best efforts" to fix the problem quickly and effectively. "Best Efforts" is not simply language indicating that the provider will work on the issue diligently. It is a term which has a specific meaning in the law. It means that the provider will put the purchaser's problem ahead of any other client, except those other clients which also have negotiated a "best efforts" requirement.
Cost and Term of Agreement. Negotiate renewals of the M&S agreement as part of the initial M&S agreement, while negotiating leverage is still present. Renewals of the M&S agreement should be mandatory, at least on the part of the service provider, so long as purchaser has complied with the terms of the agreement. In the same manner, negotiate that vendor may not terminate the agreement, so long as purchaser is in compliance with the agreement provisions and fees are paid up to date. If the M&S agreement can be terminated or not renewed by the service provider, any issues negotiated in the M&S agreement could be negated simply by terminating or failing to renew the agreement, and then renegotiating the agreement, with the leverage on the service provider's side.
Also negotiate a fee formula, so that increases over a period of years are set, up front. This prevents the vendor from making up for a low ball bid, used to get the original purchase, by increasing maintenance charges during a term or at the time for renewal. Build in a method for increasing vendor's maintenance fees, which will assure that there are no runaway maintenance fee increases. Pegging increases to the rate of inflation or to the fees which vendor charges similarly situated clients are among the many ways maintenance fee formulas can be written. Whatever method is chosen, it will assure continued maintenance at a reasonable and sound fee level.
There are, of course, other significant issues to consider in a maintenance agreement. This article has just skimmed some of the more important ones. Your legal advisor should help you negotiate maintenance agreement, because the issues can be both complex and very important to the future use of the software or system.
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