| Don't Be
Afraid of Custom Software Development, Protect
Your Technology Assets! By Jim
Ford, CEO, Guard-IT Corporation
For Small Business Texas, February 2, 2000
How
many business owners invest in customized or
proprietary software or other information
technology (IT), purely at the mercy of its
Developer? Nearly every one. How many business
owners have had to reinvent the wheel because the
Developer went out of business, discontinued the
product or its service agreement?
Too
many. Unfortunately, this is a common situation.
Developers
are, by and large, honest and hardworking
business people. However, the turnover and
volatility inherent in the software development
industry results in a bottom-line increase in
costs – not to mention the sheer panic and
frustration – for business owners without
recourse when a custom software package and/or
its Developer goes south (or to Bankruptcy Court,
or wherever).
Traditional
methods, like insurance or liquidated damage
provisions in the software license agreement,
don’t cut it. Insurance (i.e., cash payment
upon declaration of a loss) is completely
insufficient – the check will not and cannot
replace the computer system by which the
Licensee’s business lives and breathes!
Liquidated damages (still another inadequate cash
payment) are virtually impossible to predict and
are subject to complete dismissal by a court or
jury, should the scuffle between the Licensee and
Developer go to court.
However,
business owners need not despair and much less
“wing-it” when contracting for custom
software development. They can simply ask the
Developer to provide the only real solution:
third-party escrow of the software’s source
code and its support materials and documentation.
For under $2,000.00 including first-year
maintenance, an escrow agreement can be prepared
in a day or so, and eliminate the prospect of six
weeks’ of sleepless nights during a
development project.
Escrow
binds the Developer and Licensee(s) under a legal
contract that basically says, if the Developer
goes south (or to Bankruptcy Court, or wherever),
the Licensee may obtain an exact duplicate of the
source code, documentation etc. from the
third-party escrow company. The Licensee may then
use internal or external programmers to support
or repair the software.
Compared
to the replacement costs, downtime,
reinstallation and retraining required to build a
new system from scratch, software escrow becomes
a “no-brainer”, and a proactive win-win
for all of the Parties. Not only is the
Licensee’s benefit clear, but the Developer
also gains intellectual property (IP) rights
protection by the escrow, as the third-party
agent can independently authenticate its
ownership. What a deal!
As
a closing tip, Licensees and Developers should
not place their escrow with their own general
counsel (or a brother-in-law with a fire safe).
Should a dispute arise, it’s unlikely that
either Party’s attorney will be viewed as an
unbiased “keeper of the goods”. The
Parties should seek and hire an independent
company that specializes in escrow agreements.
Then,
they can both get some sleep.
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1999-2010 Guard-IT Corporation, Austin, Texas.
All rights reserved.
Page updated 01.05.2010
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