The only way to avoid a stiffing is to make sure the wording of
contracts is watertight and covers all eventualities, writes Bill
Monk
The software buyer appears to be infinitely forgiving. Even an open
"stiffing" with accompanying recriminatory words and threats seldom
results in any real action, let alone public or private litigation.
On the contrary, the buyer and supplier organisations will most
likely be working productively together even after a relatively
short period.
There are, of course, notable exceptions. Some interesting and
long-running "never darken our doors" actions have been taken.
One large financial organisation, after a significant stiffing
allegation against a large international software organisation,
would not entertain new software or services from that supplier
even several years after the event.
The sad thing is that both businesses suffer because of the poor
relationship. Perhaps the fear of such situations explains why the
ability to move on without penalty is so prevalent, although a more
likely explanation is that the buyer has accepted the inevitability
of the situation and has "better things to do" than conduct a
vendetta.
Where recriminatory action is taken it is usually after the buyer's
management realises that it wasn't just the approach of the account
manager they didn't like but the policy of the supplier
organisation as a whole. Such policies can be impenetrable and
contracts are often offered on a "take it or leave it" basis.
The software supply industry is accomplished at setting - and
keeping to - sales, pricing and contractual policies, usually far
more effectively than the buyer organisations they deal with.
Generations of sales staff and management continue to adhere to the
party line, and in some organisations these policies (and terms of
business) seem immovable.
But from a supplier's point of view, they are dealing with a
product that is unique in its distribution and usage and their main
and sometimes only means of protecting their interest is through
the law and their contract with the customer.
So, we have to question whether the buyers always recognise the
situation they have got themselves into and, if so, do they know
how to get out of it? All to often, the answer to both of these
questions is no.
The software supplier invariably gets the blame when problems
occur, sometimes rightly so. But the majority of problems arise
because of a lack of clarity in the agreement between the buyer and
supplier.
This usually means that something is missing from the agreement and
because that agreement is often prepared and delivered by the
supplier, any problems occur at the buyer's end.
What is stiffing?
Stiffing is when a software supplier
tries to charge for anything not specifically permitted under the
terms of a contract with a user.
This can include changing platforms, location, number of users, or
company name, acquisitions or mergers and the effects of
outsourcing and insourcing.
The confidentiality gap scenario
The buyer agrees terms
for an application generation software licence and the software is
implemented in the buyer's IT department. The buyer's own staff use
the software to write business critical applications that
ultimately become an integral part of the service offering.
However, there is a problem. The buyer organisation finds it hard
to recruit, train and manage the applications staff so it calls in
a specialist service organisation. The buyer's staff transfer to
the service organisation and the latter provides all his
application support services under a service level agreement.
Everybody is happy, until the software supplier finds out and
claims that confidentiality has been breached. This is doubly
serious because the service provider's organisation is considered
to be a competitor of the software supplier. The lawyers appear
quickly, having been summoned by both parties. The buyer's lawyers
and a second opinion law firm both pronounce, "They've got you bang
to rights, you'd better negotiate."
Was this a subtle stiff?Consider the following:- The buyer did not review his contract before he undertook the
service agreement (and interestingly neither did his lawyers)
- The buyer did not inform the software supplier of his
intentions. He assumed that because he had a contract to use the
software he could use it how he liked
- The agreement between the two companies was contractually
incomplete and did not include key points that the buyer should
have considered. The supplier claimed that any third party (not
just a competitor) that was given access to the software would have
caused a breach of contract. This could include any contractor the
buyer hired
- The account management and day-to-day contact provided by the
supplier was poor. Communication and service were worse - in a key
account where the supplier wanted repeat business that service and
support should have been better
- No quarter was given by the supplier. The initial amount
claimed was huge, the settlement figure was significant but less
than the original claim - but then the supplier said, "OK, carry on
as you were."
The 'flexibility' scenario
A huge (multimillion-pound)
deal is struck between a large user and software supplier. The
contract is detailed and takes several weeks to complete.
The terms are more than usually complicated because new audit rules
for both parties are a major consideration. Finally it is complete
and both parties are happy.
At a senior management level in both organisations there is an
unwritten agreement that the supplier will be "flexible".
Six months into this long-term deal, the flexibility is needed, and
the supplier resorts to the contractual words and says, "What
flexibility? You'll have to pay [for everything]."
While there are always unwritten assumptions, these have to be
constrained to insignificant or common practice items, and they
should have no real impact on the business.
As an example, it is reasonable to expect a named account manager
and to have periodic account reviews, with an escalation process if
things go wrong. Such requirements are rarely written in the body
of a contract (they may be in a service level agreement) but in any
case they are usually delivered.
However, anything of any significance is worth writing down, and
double-checking to ensure that interpretation will be the same as
you intended even after you and the sales person have moved to
pastures new.
Bill Monk is director at LOCS (Licensing, Outsourcing and
Compliance Services), a newly formed company that specialises in
legal compliance and commercial consultancy