A New Dawn In Software Contracting

When it comes to contracting and negotiation, the software industry has proven one of the most frustrating for its customers. Now, it seems things might be changing.

There are good reasons for some of the complexity in software contracts. The need for developers to protect their asset and establish reasonable returns is well understood. But this has led to tortuous charging mechanisms and onerous terms and conditions – and it has also been accompanied by supplier reluctance to take meaningful responsibility for product performance.

So it is no surprise that Microsoft recently discovered that some two thirds of IT directors see software procurement as a cause of delayed implementation, increased complexity and a source of damage to the reputation of IT within their organization.

What is surprising – and to be applauded – is the fact that Microsoft plans to do something about it. Today, they have announced an initiative to ‘champion industry change in software procurement’. They plan to do this through three major steps:

• Deliver better terms that focus on speed, lower transactional costs, balanced allocation of risk and more customer-oriented contracts;
• Agree commitments that improve customer and partner alignment with Microsoft’s engagement resources;
• Reduce standard contracts from many unique forms to a rationalized few.

A key goal appears to be to build increased collaboration with customers, to agree fair and reasonable levels of accountability for outcomes. This approach not only puts Microsoft at the forefront of the software industry, but in fact moves it to a leadership position in many industries.

Of course, buyers will be waiting to see whether these sentiments are borne out in practice. But early customer experiences cited in the Microsoft press release support the value that is being claimed. Hopefully, customers will respond positively and show themselves ready to work in a collaborative spirit to develop win-win relationships. Microsoft has shown it is listening and is prepared to take a new attitude to risk – and there are many who will be watching to see if that pays off.

It will be excellent news for business everywhere if this succeeds and spurs new approaches to contracting and negotiation on a cross-industry basis.