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Are Purchasing Practices Killing Your Software Projects?

By David Taber, CIO
January 30, 2014 10:38 AM ET

CIO - The larger the organization, the more comprehensive and sophisticated the purchasing department. By setting up highly optimized processes, purchasing saves your company time and effort for 80 percent of purchases.

But there's a big issue for IT: There are no companies where 80 percent of overall purchase volume consists of custom software or system integration. By definition, purchasing processes, methodologies and standards are suboptimal for software projects that use consultants or integrators.

How sub-optimal, you ask? Take a look at this top-10 list of contractual issues I've seen in the past year. Not one is made up. How much will this list impact your project? Let's leave that unhappy news for the end.

Top 10 Stupid Software Contract Tricks

10: Requiring the consultant to transfer ownership of the work product. This makes perfect sense to the purchaser, but abiding by it really means setting up a clean-room development environment (to avoid intellectual property contamination) and re-inventing the wheel for each and every feature your project requires. That means you get a unique piece of code, with unique bugs.

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If, instead, the consultant retains ownership of the IP, your project can take advantage of all the labor of its previous projects and all the reliability from previous implementations. Let the consultant actually own the IP and you get the full source code, as well as a perpetual, irrevocable, fully-paid license to use the executable.

9: Establishing legal venue at the client's headquarters even though you have operations in the vendor' HQ jurisdiction. Everybody wants to avoid any hint at legal action. That's just bad news all the way around. The whole point of a contract, though, is to set the rules of engagement should an action be required.

Of course, you want to have any legal action filed near your headquarters' lawyers. We all live to improve their lives. However, your consultant probably isn't headquartered in the same state as you and may not have any formal operations there. The only real power you have to compel them to appear in court is your ongoing business - but if things are going that far south, that incentive is pretty weak.

Unless you're lucky enough to fit "sister state" reciprocity criteria, your local court's judgment would be ineffective anyway. Instead, you'd actually have more power by filing any action in the state where the consultant is headquartered.

8: Requiring consultants to indemnify you without limitation, but not indemnifying them. This also makes perfect sense to the purchaser. Any vendor action that causes a third party to sue should sue the vendor. If you're not offering the reverse coverage, though, for actions that your company might take, then this is just a dickish power play. The net result: The consultant has to take out a lot more insurance, at a cost that's higher than your own insurance, driving up the rates charged for your project.

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