Download PDF - Department of Navy Chief Information Officer - U.S. ...

Referencing Existing Contracts
Researching existing contracts or schedules that
include basic terms and conditions and some established
pricing guidelines for comparable purchases
can provide an effective frame of reference. If the
initial acquisition was relatively uneventful, then there
is a framework for avoiding some of the major pitfalls
experienced in commercial software licensing. Such
contracts include DoD ESI/SmartBUY blanket purchase
agreements (BPAs) and organizational enterprise
licenses and volume purchase agreements. Baselines
for price and terms and conditions can be established
against which improvements can be sought and better
value obtained by examining existing contracts in
the context of the following checklist:
» How does the contract price compare to the
vendor’s list price How long is it valid Are
discounts available for larger orders What are
future period prices
» Do the licensing and usage metrics (per processor,
named user, etc.) match the requirements If not, is
it easier to change requirements or seek a different
licensing metric
» What are the contract terms Are they transferrable
Are previous software orders placed under
this contract available for review What terms and
conditions were modified or added Were any
restrictions added
» What specific information or insights can the
cognizant contracting officer(s) for the contract
vehicle or individual orders provide
Identifying Target Prices and Terms
In the event that price, terms and conditions data
about recent, similar transactions are not available,
there are two resources that might be helpful —
industry guidance and historic government transaction
data.
Look for a resource, such as an industry analyst, that
offers software acquisition benchmarks and guidance.
These firms can provide general information concerning
acquisition planning and identify trends for
software vendor pricing and licensing methods.
Data from prior government transactions can also
be leveraged, provided that key elements of similar
acquisitions, discount levels or key terms and conditions
are comparable. If no historic transaction is similar,
the target price and terms and conditions could
be extrapolated from existing known values. Use the
following key criteria to identify and prioritize similar
transactions:
» Dollar value of the transaction;
» Type of license and license restrictions;
» Total contract value, including all option years,
product options, maintenance and support;
» Discount percentage — from list price to GSA
schedule and ESI/SmartBUY base prices;
» Product list, including quantities;
» Licensing metric, such as named user, per processor
or per server;
» Identification of contingencies, performance clauses,
acceptance criteria and solution guarantees; and
» Time of year (relative to vendor fiscal periods).
ESI’s Best Value Toolkit
ESI’s Best Value Toolkit (www.esi.mil/
bestvaluetoolkit) emphasizes review,
analysis and decision making based on
software requirements and fit, price,
terms and conditions, and total cost of
ownership. The toolkit includes a roadmap,
guidance, informational checklists
and worksheets, and a library of tools to
be used during the acquisition process
to help attain best value. It also identifies
resources to assist with any step of
the acquisition process.
Planning to Negotiate
Armed with pricing, terms and conditions, you should
be well-prepared to enter negotiations with the software
vendor. Understanding the nuances of the transaction
from the seller’s perspective can also help with
proposing arrangements desirable to the seller, while
satisfying the requirements of the end user.
Term licensing and SaaS licensing are very different
from perpetual license grants because they essentially
limit negotiation options to price, products included,
licensing metric and license restrictions.
When negotiating a perpetual software license,
some important requirements, such as intellectual
property ownership, transaction revenue recognition,
definition of user rights and timing of the transaction
relative to the seller’s fiscal accounting periods, can
affect the financial value to the seller or possibly be
non-negotiable depending on specific circumstances.
Knowing these issues up-front can help in give-andtake
negotiations that create a win-win situation for
both parties. In any case, it is advantageous to negotiate
ancillary items such as software maintenance
and support; training and education; and consulting
services, including projected pricing for the life of the
deal, along with the software license purchase, while
there is still the greatest leverage.
Consulting services, however, are a unique element
in license acquisition. The vendor has very strong
What is ESI
The Department of Defense Enterprise Software Initiative
is an official DoD program sponsored by the DoD
Chief Information Officer (CIO) to save time and money
on purchases of commercial software, IT hardware and
services. Through its joint team of experts, ESI consolidates
requirements and establishes agreements with IT
providers, resulting in a unified contracting and vendor
management strategy across the entire department.
In its first 10 years of operation, DoD ESI has generated
more than $4 billion in cost avoidance as compared
with prices established on the General Services Administration
Federal Supply Schedule.
financial incentives to segregate the license transaction
from consulting services because potential claims
tied to performance of consulting services could make
the transaction ineligible to be recorded as current
revenue. That said, it is still an effective strategy to
negotiate labor rates for future unspecified services
at the time of license negotiations, including separate
rates for qualified vendor personnel versus the potential
need for subcontractors to assist later.
There is no reason to be intimidated by large enterprise
software transactions. Simply follow the steps
outlined in this article, gain some insight into the
nuances of software publishing and take advantage
of the information and resources available at www.
esi.mil to ensure that the acquisition can be completed
within the framework defined by the Federal
Acquisition Regulation as a best value purchase.
Floyd Groce is director of commercial IT strategy for the
Department of the Navy Chief Information Officer (DON
CIO) and co-chair of the Department of Defense Enterprise
Software Initiative (DoD ESI) program. John Zettler
provides support to DoD ESI.
36 CHIPS www.doncio.navy.mil/chips Dedicated to Sharing Information - Technology - Experience CHIPS April – June 2012 37