Computer Contracts – Negotiating with a Large Public Sector Agency

Jane LambertJane Lambert

22 July 2010

A small Yorkshire software house had developed with some public funding a suite of applications that could be used in a number of industries. A large non-departmental public body offered to trial the software in one of its computers. At the end of the trial the customer offered to roll out the computer throughout the system. The software house was very excited and saw that sale as a great opportunity.

The customer offered the software house a draft contract which I was asked to review. The document was quite extraordinary. Instead of terms that one would usually expect in an end-user licence agreement drafted for a licensee’s benefit there were provisions that were provisions that would have entitled the licensee to appoint third party contractors to maintain the software, access the source code and possibly even set up in competition with my client. I ran a red pencil through 70% of the draft.

Somewhat miffed by my reaction the customer’s finance director and his in-house legal advisor asked for a meeting with my client’s managing director and me. The customer and his solicitor were patronizing in the extreme and were reluctant to give ground on anything. To ensure continuity of maintenance I offered escrow with the NCC. To guarantee our indemnities I offered insurance. After a full day of negotiations we shifted them a little before they dashed for the airport.

The revised contract that the customer offered reflected hardly any of its concessions so I rejected it again.

Several months later my client received a much more conciliatory approach from the customer. A different manager visited us and he brought a partner of a large commercial law firm. They offered us a new contract which was more of the kind that I would have expected. We had three days of negotiations in Yorkshire and in London and at the end of the process we had a contract that I could advise my client to accept.

The agreement did lead to other work. A year later I was asked to adapt the agreement with the British agency for a foreign authority that performed a similar function to the British customer in its own country. I advised my client that we should start with a contract drawn up on our terms from which we could make concessions rather than adapt as a starting point one that had been drawn up in favour of a licensee. He took my point and I adapted one of my standard form EULAs (end user licence agreements).