What you need to know about your upcoming license agreement renewal

renew contract

License agreements lie at the root of business relationships and contracting is a continuous process so every once in a while, any organization will have to face a license agreement renewal. Contracts are vital business assets and must be treated accordingly. Most license agreements have a termination date and well before that date is approaching, you should start thinking about the next step: should you extend it, should you renew it, or should you terminate it? If you decide to extend your contract, you should carefully review if the terms and conditions of your agreement require adjustments, as a result of changes in your business needs. Just extending your contract as it is, without looking into potential adjustments, will most likely result, in a shorter or longer term, in compliance issues. This article aims to help you prepare for your next contract renewal.

Why should you review your contractual terms?

A contract is a legally binding agreement with financial implications which, in the ever-changing world of software asset management, can be quite significant. Since you are committing to, in some cases, quite a long period of time, you would want to commit only to terms and conditions that will benefit you for the entire period of the contract. Especially if your organization is changing. Let’s look at a simple example where company X acquires company Y. Typically, as a result of a merger or an acquisition, company Y cannot make use of company’s X licenses and an adjustment to the agreement is required.

One of the most expensive mistakes a company can make is to not prepare before signing a (new) agreement. The decisions you make today will impact your organization for the next 3-5 years. Because of this, you must have a clear understanding of where you are today, as well as where you’re going. Indeed, in the challenging world of software licensing this can be a daunting and time-consuming task, but it might save you a lot of legal fuss and money in the future.

What opportunities do you possibly have?

Agreements contain detailed information about important aspects such as geographical restrictions, the types of support available, terms of payment, and rates that are worth to be examined more closely. An organization working to improve its cash flow may find that renegotiating timeframes for payment can be just as important as discussing pricing. Small refinements to contracts can have a ripple effect and at a contract renewal stage you should aim at achieving the following:

Get the best value for money – A license agreement renewal is the best time to negotiate some discounts both for licenses and support. Most software publishers have an increase rate for support fees but if you agree to support in advance for multiple years you can dispose of the increase rate.

Reduce risks and liability – try to reach a win-win situation and avoid an expensive dispute resolution. Limit the number of audits, the number of software titles that can be audited at one time and don’t let thesoftware publishersuse their tools for data gathering.

Establish and maintain long term contracting relationship – you should try to understand your software publishers’ position, identify the top products they try to sell and see if they match your needs as well.

Preserve contracting opportunities – If it slipped your mind the first time you signed a contract, at the renewal you can add special clauses that would be in your advantage in the long run. Examples may include exchange options so that you can change licenses that you no longer need with other licenses or credit(s) or partial termination of support. You can also add a clause to make sure you get the same discount for future purchases (price hold).

Eliminate unnecessary costs – terminate whatever licenses or support you no longer find useful.

Agreements can be complex but managing them does not have to be. With proper advice and expertise, you can have bulletproof contracts. Stay tuned for our next article which will give you more details on the steps you need to take to be prepared for a contract renewal.

This article was published on 08-11-2018