Tips for Negotiating Software License Contracts

Jul 3, 2007 Michael Wurzer

We’ve been using GeoJet mapping for some of our clients for a couple of years now, but we decided about six months ago to switch to a new platform. Our contract with GeoJet was set to expire in May but we didn’t want to switch from GeoJet until this fall when we will be releasing our new search module. Accordingly, we needed a brief extension with GeoJet on our existing contract.

When I asked GeoJet for the extension (thinking they’d be happy with a few more months of revenue from us), I was more than a little chagrined to learn that I had made two major mistakes in negotiating the original contract with them. First, I had agreed to a maximum fee increase provision, which, at the time, actually seemed like a good idea — cap the amount of increase you can see on an extension. Second, I had failed to consider the possibility of needing a short-term extension and negotiating the terms for it. GeoJet, being the astute business people they are, leaped on my mistakes and agreed to the extension as long as we paid 20% higher prices through the extension. Of course, our contracts with our clients are fixed, so we’ll be eating these extra expenses.

So, here are the lessons I learned: (1) always anticipate that you’ll need a brief extension following termination and negotiate for it up front; and (2) remember that a maximum for you is really a minimum for the other side.