Software Agreements Line by Line. How to Understand & Change Software Licenses & Contracts to Fit Your Needs

3. Support Fees

Maintenance and support fees vary widely from vendor to vendor. In general, such fees are calculated as a percentage of the license fees. The percentage can range from 12–18 percent. A common vendor ploy to increase support fees while appearing to agree to a low percentage is to use language such as the following: "Support fees shall be calculated as 13 percent of Vendor's list price for the Licensed Software." This approach should be rejected. Few licensees pay list price for software. Almost all license fees are discounted to some extent. The licensee should require the support fees to be calculated based on the actual license fees paid, not on some substantially hire "list price."

Yearly fees for support should be fixed for at least the first three years of the license term. Thereafter, the licensee should try to negotiate an additional period of one to three years where yearly increases in support fees may not exceed some agreed upon cap (e.g., CPI or CPI plus 3–7 percent or simply a fixed percentage of the prior year's fees).

Some licensors provide licensees with "bank hours" for support (e.g., "Vendor will provide licensee with up to five (5) hours of support in any month of the Term"). Additional hours are charged at a set fee, which the vendor may frequently increase at will. This approach can lead to substantial additional support fees if the bank of hours is exceeded. If the vendor insists on imposing a bank of hours, consider the following negotiating points: use a "stair-step" approach to the bank of hours (e.g., start at 10X (where X is the base monthly bank of hours) during implementation and for six months thereafter when support calls are likely to be high, after that period, reduce the bank to X hours per month); and exclude all warranty related calls and product defect calls from the bank of hours, the licensee should not be required to pay the vendor to fix errors or defects in its own software.

The following example revision shows a potential replacement provision for Section 3.2 of the vendor form agreement that includes the concept of Initial and Renewal Support Terms and price protection.

Example Revision:

• 3.2 Support Term and Fees. Upon the expiration of the initial one (1) year support term (the "Initial Support Term"), Customer may, at its option, extend Maintenance and Support for up to five (5) additional consecutive one (1) year terms (each a "Renewal Support Term") by providing written notice to Vendor at least thirty (30) days prior to the expiration of the pending term; provided that if Customer does not exercise its option to extend at the end of the Initial Support Term, or any Renewal Support Term, the remaining option(s) shall automatically lapse. Vendor shall provide Customer with at least sixty (60) days prior written notice of the end of the Initial Support Term and each Renewal Support Term. Such notice shall identify any fee increase applicable to the Renewal Support Term that is about to commence. Maintenance and Support fees shall be fixed during the Initial Support Term and first Renewal Support Term. Thereafter, Vendor may increase such fees for a Renewal Support Term by providing notice to Customer at least sixty (60) days prior to the commencement of such term. Any such increase shall not exceed the lesser of: (i) four percent (4%) of the fees charged during the preceding term; or (ii) Vendor's then current generally applicable rates, less fifteen percent (15%).