I completely agree with David Dobrin. It’s hard to convince people to do it, of course. But read his logic. 1/200th. I think that is about the right threshold – it might even be a little low (my life insurance policy is about 1/500th… my car is about 1/166th – but doesn’t take personal injury into account… my home is about 1/1600th).
Hmmm… the more I think about this, the more I think it would be really easy to convince my clients of this. Anyone have a counter argument?
OK, I’ve tried to be cool… I’ve tried to be calm. But I’m really tired of telecom companies and their taxes, tariffs, surcharges, fees, pass-throughs, regulatory issues, etcetera. It’s not that telecoms are inherently bad. I like many of them (ok, most of them). But I’m tired of them passing along all of the various government taxes and fees that they have to pay. In the rest of the world, we call that “the cost of doing business”.
I’ve tried for years to get things down to “sales and use” taxes. Invariably, if I want to get the contract completed, I have to agree to the pass-throughs. I guess I’m just sick of bending on this.
The reason, of course, is that these taxes, fees, surcharges and other such additional costs ARE NOT THE DEFAULT RESPONSIBILITY OF THE CUSTOMER! That’s right – the telecoms themselves are responsible for paying these various fees. But the telecom lobbyists have been quite successful in making sure that the laws and regulations requiring payment of these fees don’t talk about whether the telecoms have to pay them themselves. So what do they do? They pass along the fees to the customer. Again, they’re passing along the cost of doing business (ie: taxes levied by the government). Heck, sometimes they don’t even attempt to mask it – they call it a “Cost Recovery Fee” right on your invoice!
Can you imagine if you were able to successfully pass along YOUR costs for doing business? So that not only did you get the fees for your product or service, but you got additional fees based on the various regulatory taxes and surcharges you had to pay? I wonder what would happen if various businesses started tacking on additional fees for services provided to the telecom companies. Do you think they’d want to pay them?
Has anyone else grown tired of this? I can’t be the only one.
[PS. Other regulated industries do this too, just not as blatently. Need proof? Check your most recent energy-related bill. See any “fees” not actually 100% related to your usage?]
[PPS. We’ll talk about telecom tarrifs one of these days, too.]
If you’ve taken my advice from the Software Licensing Handbook and included maintenance fee cap language that ties any increase in fees to the Consumer Price Index or x%, “whichever is less”, well, you might be in for a treat! Depending on the index you chose, and the time schedule for it (whether you chose an all-year average, or the average as of a given date for the prior twelve month period), there’s a chance that your CPI number is going to be a negative number.
Yup, that’s right, you might have a built-in maintenance fee decreasing mechanism in your contract. Now, you only have to go find it and find your CPI number. Oh, and it might also be the time to hope that you have a contract management system and that this is one of the data points you’re tracking.
Well, as I predicted years before I started writing this blog, Microsoft is now trying to convert the average home user from a perpetual software license model to “software as a service” (Saas).
My knee-jerk reaction is that this isn’t going to be good for the average (any) user – business or consumer. But let’s play it out and see what happens:
In the current, perpetual model, the average cost of Microsoft Office 2007 is $119 (per Amazon.com). This is a one-time expense and allows you to install Office on two machines (desktop and laptop) so long as you only use it on one machine at any given moment in time. The average person never buys any kind of support for this product unless it’s a pay-per-incident issue that is SO complex that they can’t get help with it from friends or strangers via the internet. But you do get all of the updates to the current version of the product (ie: if you’re on version 2004, you’d get all updates to 2004, but not get version 2007).
Because it’s a perpetual license, you can use this product FOR EVER, without ever having to pay another fee to Microsoft unless you want to upgrade to their latest version (which, at the time I’m writing this, happens about every 3 years per platform, alternating between PC and Macintosh). From a depreciation perspective, if you were going to buy the latest and greatest version of the product every three years, you would divide the purchase price by 3 to find out your annual cost of ownership: $39.67, which works out to $0.108/day. Not too bad for the product that supports all of your e-mail, writing, spreadsheet and presentation tasks.
We don’t yet have pricing available for Microsoft’s new online offering, called Albany, but we do know that they’re going to bundle in a few already-available-for-free services.
We also know that Google already offers something quite similar (GoogleDocs) for free. If you’re already a GoogleDocs user versus a Microsoft Office user, you have made a choice to go with one or the other for a reason (most would say that they choose Microsoft for “guaranteed compatibility” and “support if needed” … and Google users say that they want “openness”, “freedom” and “collaboration ability”). I highly doubt that Microsoft is going to offer their product/service for free… but I’ve been wrong before.
However, this really isn’t about Microsoft versus Google – it’s about a bigger issue of whether a conversion from Perpetual Licensing to SaaS is really a benefit to either the vendor or the consumer. Perpetual software users like not having to upgrade every time the vendor releases a “fix.” They like knowing that they don’t have to keep paying for maintenance when the product hasn’t really changed much over time. They like having a one-time depreciable expense (if they’re business users). Oh, and they like knowing that if the vendor ever goes out of business, it doesn’t matter too much, since the software is installed locally.
SaaS offers a level of convenience not found with perpetual products. You are always on the latest version, always covered by support and you have less of an administrative headache since the product isn’t installed locally. Sure, you have to have greater bandwidth (I’m guessing Microsoft will actually have you download a full version of the product which will simply “phone home” every time you double-click on the product to use it). But you give up the ability to sever your ties with the vendor yet continue using the product.
I like the SaaS model for some situations – I use one for my contract management system, for example. But for everyday, standard use products? Especially those in millions of homes world-wide? I’m not sure we’re there yet. I’m REALLY concerned about the quality of service – and the constant communication connection (from a privacy perspective) of all of these phone-home events.
What do you think?
I’ve written before about the use of Service Level Agreements and my general feeling is that if you have an agreement to perform, you perform per the terms of the agreement. In other words, if you buy an hour of my time, I give you an hour for my hourly fee. Within that hour, I should be fully engaged to providing you what it is we’ve agreed that I’m going to do for you (while I personally consult on contracts, negotiation and licensing… this could be for anything – painting, yard maintenance, skydiving, etc).
As a service provider, I expect that you want 60 minutes of time. Not 59 and not 61 – otherwise you’d ask it of me. On the flip side, I expect to be paid my hourly rate for those 60 minutes. Not one penny more or less. I also believe that if I give you consistently sub-standard service (there’s always some level of fluctuation you give on individual performances and average out over time), you shouldn’t owe me my full rate. And perhaps, if I really over-perform – somehow give you WAY more than you were expecting – that you’d perhaps give me some kind of “tip” or bonus for the over-performance.
But do you want to give me a bonus for only doing what I said I was going to do?
This is known as an incentive payment. Over at 360° Vendor Management, Tony started the conversation by talking about how to use incentives. Except for some specific things like requirements contracts, though, I don’t believe in them. Contract for what you want and what you can deliver. If you can’t deliver (or want more), discuss the situation up-front and create a tiered performance structure. But don’t pay (or expect) extra for just meeting the terms of the agreement.
Filed under: contract terms, fees, IP Indemnity, license grant, NDA, negotiation, risk, Uncategorized, warranty
When was the last time that someone referred to you as the Order Prevention Department? Business folks tend to think that a contracts staff is only there to stop them from getting their next purchase. We know better, of course, but it doesn’t change the fact that we are constantly having to show value and purpose to our existence in the fact of adversity.
Recently, I was engaged in the beginning of a deal that would end with the purchase of a large technology system. The evaluation was done via an almost picture-perfect RFx process, spearheaded by a business owner who knows the value of a corporate contracts group and for whom I hold great respect. As the selection process neared conclusion, the business got anxious. They “needed” to start work immediately to meet their internal deadlines and thus wanted to do a…
… wait for it …
… bu, bum, baaaah…
Letter of Intent!
I wanted to cry. Here we were, humming along beautifully, and they wanted to derail it with a Letter of Intent (LoI).
Now, if you’ve never heard of a LoI, it is to a contract what a golf cart is to a car. In other words, it might eventually get you to your destination, but without the protection afforded by an enclosed vehicle. LoI’s are one of the banes of a contract negotiator’s existence – a poor excuse for a contract and they are sometimes seen as the easy way out to get a deal done quickly.
In the particular example above, the business wanted to use it as a bridge to get work started while we negotiated the full agreement. Since LoIs take at least some time, there’s a choice to devote some effort to the LoI rather than review the full agreement. Granted, the full contract will require MORE time, but I don’t think it outweighs the risks of the average LoI.
When confronted with a request to review a LoI (and when you can’t negotiate with the business to just forge ahead with the full agreement), then remember to at least lock down the following things:
1. Term. Place a limit on how long this interim agreement is going to last. The shorter the term, the less the risk.
2. Fee/Rate. Clearly state the rate/fees and how they will be calculated. A fixed fee is always best (and even better if that fee is $0.00). If you really want to protect yourself, include a cap on the total amount of money that can be expensed under the LoI. Remember always that a one-week engagement isn’t equal to only 40 hours – 2 resources = 80 hours, 3 resources = 120 hours. Multiply against your listed hourly rate and you can see “small” agreement add up quickly. Oh, and don’t forget about capping expenses, too.
3. License. If you’re getting access to software without a full license – WATCH OUT. All of the standard license issues still apply (IP indemnification and virii for example). Also remember that if for any reason the full agreement doesn’t get signed, it’s most likely that your license will terminate.
4. Services. Clarify ownership for anything created as a result of services performed. What happens if the full agreement isn’t completed? Do you lose ownership? How about work that includes your confidential information?
5. Warranty. Depending on how long the LoI lasts, or how any deliverables are created and delivered, you may need/desire a warranty for those deliverables.
6. Indemnification. As mentioned above, and for deliverables/services, too, you will want to be indemnified in the event that the vendor uses something they don’t have the right to use in performing the work. You will also want a general indemnification if the vendor is going to be onsite at your facilities in the interim term.
7. Confidentiality. Hopefully you’ve already completed a Non-Disclosure or Confidentiality Agreement with any vendor that you’re willing to use a LoI with – but if not, include your standard confidentiality language.
8. Termination. As with any other license or services agreement, include standard termination for breach language. Make sure you also retain the ability to terminate the LoI at any time, for any reason. It’s probably reasonable that you will have to pay for services performed up to the moment of termination, but don’t forget to tie it to ownership over work completed and paid for.
9. Governing Law. Fairly self-explanatory, but don’t forget to cover governing law. And remove jurisdictional statements, just like always.
Oh, and to make matters even worse, each of the terms you negotiate in the LoI may change in the full agreement, as the risk you (or the vendor) are willing to tolerate in a short-term agreement may be drastically different than the risk you (or they) are willing to take in the long run. The usual saving grace in all of this is that the vendor probably doesn’t want the LoI either – work together to make it palatable.
When was the last time you bought something? Today? A few days ago? Do you have the item in your possession now, or did you order it online? At what point in the transaction did you pay for it? I keep twisting these questions over in my head each time I read payment language that wants payment for software at the time of signature.
Of course I can see the vendor’s point. They are granting immediate license to use the product, thus I should pay now as I can have immediate benefit of the license. But for the vast majority of products, some kind of implementation or installation must occur first… and almost always, the vendor is the installer.
In such a case, when should I have to pay? My gut feeling is that I don’t pay until I receive value from that which I have purchased (or will be immediately able to receive value – for those items that are being shipped to me). Which means, in the case of most software – that I shouldn’t pay until installation/implementation is completed.
Again, on the vendor’s side, this is a huge problem. Some implementations can take months. Cash flow is a serious concern for everyone, especially for smaller software vendors. So how do I address the vendor’s concerns of getting paid promptly, while still making sure that I get what I’m paying for?
Know first that this is all a matter of personal preference and corporate choice. Your organization may have no qualms about paying 100% upfront vs 100% at acceptance. But if you do HAVE the choice, I recommend considering the following things:
1. Software which requires installation should not be more than 50% paid for prior to acceptance. If you can’t use it in its un-installed form, it’s not worth anything to you yet.
2. Installations or implementations that take an extended period of time protract the risk for both parties. Decide upon a payment schedule that makes sense given the apportionment of the risk. This means understanding thoroughly the complete deal and where responsibility lies for each task.
3. ALWAYS, ALWAYS, ALWAYS have an acceptance testing procedure and tie the bulk of the fees/payment obligations to successful completion of the LAST acceptance test. My favorite analogy for this is the one about building a house. If everything else is done on the house but the roof isn’t put on properly, do you still want the house? Of course not. Make sure you end up with a completed project.
4. Payment breakdowns can be whatever you wish them to be. Milestone based is my preference.
5. Added to #3 above, make sure you also have the ability to get a full refund in the event that the project is never finished due to the vendor’s behavior. My vendor audience will cry bloody murder about this, but let’s be honest and depersonalize it for a moment. If I was selling you a car, but was doing so in pieces that could only come from me, would you want the body if I didn’t give you the wheels? I doubt it. The same is true with software. Those products which require vendor assistance to install need to be fully installed or the product isn’t worth anything to the buyer.
At the end of the day, however, and like everything else in the contract world, these points are all negotiable. Giving up payment terms for lowered cost – or the inability to get a full refund for a fixed price installation, for example, might be worth the risk.
What odd payment agreements have you made to close your deals? Comment below and lets learn from each other!