Outsourcing Software Solutions

Addressing the legal challenges and risks of outsourcing software solutions. How to reduce the prospect of disagreements and expensive litigation.

by Thomas C. Greble, John Gliedman

 

Outsourcing providers typically promise a software-based solution that is seamless from the customers point of view. But behind the seamless screen there is often an array of third-party software supporting the outsourcers services. A key to making sure that a so-called seamless solution does not come apart at the seams is making sure that the underlying software provider contracts are in sync with the customer-facing master outsourcing agreement.

 

Difficulties can arise in an outsourcing environment when the lines of responsibility for compliance with third-party software licensing requirements are not clearly drawn between the customer and the provider. In Maury v. Computer Sciences Corp., 2005 U.S. Dist. Lexis 4206, (D. Conn. Mar. 16, 2005), a provider employee claimed that he was discharged in retaliation for his efforts to stop the installation and use of unlicensed software at the customers work site. The court noted that incidents of unlicensed software use occurred in part because the outsourcing provider and the customer could not agree on who was responsible for purchasing the software that the employees needed to do their jobs.

 

Off-the-shelf software is software that can be taken off the Web or out of a box, installed, and used as part of a larger solution. Before entering into an outsourcing arrangement, the provider should consider whether it needs to have access to the customers software to add new users. If so, it will need to review the customers licenses to ensure that it has the proper rights. It is important that a customer knows what software license and maintenance provisions were put in place during the outsourcing relationship and will continue following termination of the relationship.

 

Perhaps the biggest issue facing an outsourcer and its customers is license management in a multiple-user setting. It is conceivable that an outsourcer could neglect to obtain the proper number of licenses, either to cut corners or out of ignorance of the licensing terms of the software. To protect itself in such situations, the customer should include a provision indemnifying itself if the outsourcer violates applicable lawsuch as the copyright lawsin connection with providing the services. The customer must verify license compliance as well because the vendor may not have sufficient assets to make indemnity meaningful or because litigation to enforce the indemnification clause may be too expensive or time consuming.

 

Suppose the outsourcer has an agreement with a software provider to customize the software. The agreement may lack definitive service levels that reflect the performance quality expectations of the customer. This discrepancy can create an issue for the master outsourcing agreement if not anticipated in advance. The need for coordination is also necessary to avoid potential problems with the software itself, and it is nave for the customer to simply leave this in the hands of the outsourcing company and its software vendor. For example, the software provider agreements ought to have strong virus protection and IP infringement indemnities so as to meet the customer concerns set forth in the agreement. Along these lines, the customer should require its outsourcer to bind its software providers to safeguard its confidential data with which it comes in contact.

 

What about open source software? If you think its not an issue since your company doesnt use it, think againmaybe you do and dont realize it. The use of open source software is increasingly an issue in corporate environments, as management begins to realize that employees have incorporated open source products into the environment, often without proper safeguards and controls, because theyre free, easy to install, and no purchasing review is required. If software-related functions are outsourced, the use of open source software (whether it is prohibited or allowed) should be considered in any situation in which the customer may access outside software, so that the company isnt faced with an open source software licensing issue down the road.

 

The centrality of software to all HRO transactions requires close coordination of the various moving parts that comprise an outsourcing arrangement. Whether you are an outsourcing provider or a customer, the lesson to be drawn from cases such as Maury is the importance of legal counselbeing on top of the issues of third-party software contracts from the outset of the transaction.  

Posted June 10, 2005 in Enabling Technology

Leave a Reply