Home > News & Events > MITRE Publications > The Edge >

COTS Software Licensing Accompanied by Trepidation

By Audrey Taub

The Department of Defense’s (DOD) acquisition reform policies and, in particular, the mandates to use evolutionary acquisition strategies and commercial-off-the-shelf (COTS) products, have significantly impacted the way in which the government must budget and invest its dollars. In particular, these policies have affected current methods for selecting, budgeting, and acquiring computer-based systems, and for managing the technology life cycle, which is influenced by market dynamics.

Software licensing, a method thought by many to offer a greater variety of options in the selection, budgeting, and acquisition phases, can be a mine field to the uninitiated. Simply stated, a license is an agreement between a buyer and a vendor that describes the terms and conditions under which the buyer may use, not own, the software and the extent of the vendor’s support. What is not so simple is negotiating a license that facilitates, not hinders, the development and maintainability of today’s military systems. The government has become brutally aware of the complexity of licensing agreements and the magnitude of their impact on program life cycle costs. In one dramatic example, the software license costs for a command and control system, originally budgeted at $10 million, doubled to $20 million and forced a reduction in requirements addressed.

Computer systems must be more flexible, scalable, and configurable to satisfy the changing needs of the military, and software must be upgraded and replaced more frequently than ever imagined. Thus, the importance and complexity of negotiating adaptable, cost-effective licensing agreements cannot be underestimated. Negotiating licenses is a multidimensional process driven by a project’s acquisition, sustainment, risk management, and business strategies. Before beginning any negotiations, an organization must understand how these strategies may drive their negotiations and how their decisions may impact their strategies. It is important to begin negotiations early in the life cycle, and craft a contract that provides provisos necessary to accommodate inevitable changes in needs that will occur in the future.

Licenses today come in all shapes and sizes, and both the large and small print affect the initial cost of a program and can have a major impact on maintenance costs. An important first step is to ensure that your negotiator understands your goals, budget, and business processes, as well as the software market and licensing agreements in general. You will need to negotiate options (even if they are not offered) for changes in requirements, pricing, organization (mergers, acquisitions), and COTS packages. You will also need to negotiate maintenance service agreements early in the acquisition process, which may result in better pricing.

Software usage and cost are driven by a number of conditions that must be determined early in license negotiations. We suggest that you create a checklist of current and possible future needs and consider the following issues when doing so.

Q. Have you considered all of the terms and conditions that might impact your cost?
For example, depending on the duration of your license, could you adjust the price annually, based on actual usage, or are you locked into a price for a specified duration?

Can you pay for licenses incrementally as parts of the system are installed or become operational, as opposed to paying for everything up front? If so, when do licenses expire for each CPU or user and what are the options for license renewal? Have you negotiated limits on how much the price can increase and what modifications to conditions of the license are allowed? Do you know how long licenses or renewals will be available after the licensed version has been discontinued and how much time will be needed for transitioning to the new version? Lastly, can you pay based on how often and how long the product is used? For example, can you group users by frequency of use?

Q. Do you know what your license will cover?
It is critical to know if your license covers only a specific version of your software or a version that is linked to a specific kind of hardware or hardware model, or a specific operating system or version of an operating system. If you have a developer’s license, does the license also cover the users, or can it be transferred to users, and is there an additional cost to do so? Do you know if your license covers upgrades, new versions of the software, or replacements to the software? Is your software license tied to a particular node/IP address, such that moving your CPU to a different IP address renders the licensed software inoperable ? If so, does your license specify the cost of changes for each type of change? Is the difference between an upgrade and a new product clearly differentiated? Remember, if your license covers an upgrade but not a new product release, you could be hit with unexpected, additional costs.

Q. Do you know or have you anticipated the platforms you must run on?
Some licenses are for specific CPUs. Consider the impact of replacing currently licensed CPUs with CPUs that are equivalent, upgraded, or from a different vendor. Can you transfer licenses between development or test CPUs and those in fielded systems? Some enterprise purchases require all desktop CPUs in the enterprise to be counted in the license. This may be acceptable if usage is standardized. Some licenses require checking out a license from a license pool for laptops, and some do not. Can the same person have one license for both the laptop and a desktop computer?

Q. Do you know who is responsible for and who can use the software?
You need to decide which organization should license the software and negotiate whether or not the licenses can transition from one organization to another—for example, from developer to maintainer and user, or from contractor to subcontractor. It is also important to explore the impact of the licensing agreement and cost to your program if there is a reorganization or merging of the licensee organization.

Have you determined how many and which users are allowed to use the software? Some options include all possible users by name, one per CPU, one per “seat,” or the number of concurrent users. If new users replace original users, can the licenses be transferred? You need to spell out what happens if the number of concurrent users is exceeded. Also, you need to ask about the cost of adding more users to the license, as the basis of better discounts is often the number of users.

Q. Have you considered the cost of documentation and software copies?
Documentation copies may be separately priced and you may be able to order fewer copies if only the maintainers need documents. Software distribution may be user-controlled, including such possibilities as having the licensee receive a master copy and distributing copies to users, or downloading copies from an Internet server.

Q. Is usage-based pricing a viable alternative for your organization?
Instead of paying a fixed fee per month, some vendors are offering a transaction-based charging scheme, whereby you pay for what you use. To no one’s surprise, this method has pros and cons based on, among other things, the age and budgeting preferences of an organization. Paying for what you need, when you need it is appealing, particularly for newer organizations that have not yet built up an IT infrastructure. However, some organizations prefer to have a predictable number that they can place into their budget and with which they can plan for future expenditures.

Q. How will you monitor usage?
Does the vendor require user monitoring in order to determine what to charge you? If so, how intrusive is the monitoring, and do you know if the monitoring software could interfere with your own operation? Do you know who will monitor users for frequency of use and license expiration? Some licensors let the user monitor conditions of the license. There are a variety of ways to monitor usage, and there are COTS products available for doing so. Some licensed software has built-in checking. Usage information can, in fact, help the licensee tune the system.

However, have you considered the impact of monitoring usage? For example, will you monitor while the software is in use? This may:

- Consume space and time for its execution
- Deny service when licensed usage is exceeded
- Deny service when the license expires
- Stop operation of the whole system

Q. Do you have an asset management process in place?
Can you at any given time identify what you have, where you have it, what it is costing, who can use it, where they can use it, when it will expire, and what might replace it, as well as know what has been distributed, to whom, and with what options? As obvious as this seems, not every organization can readily answer these questions. Diligent configuration management allows you to manage your baseline, reevaluate your current plans and configurations, develop contingency plans, and manage risk.

Some Recent News
The main problem identified with procuring software for the DOD is that the software (including price, acquisition cost, distribution, training, maintenance, and support) costs too much. As a result, the DOD has taken the lead to develop, oversee, and maintain a department-wide Enterprise Software Initiative. The program’s mission is to develop and implement a DOD enterprise-wide process to identify, acquire, distribute, and manage Enterprise Software. The goal of an Enterprise Software Agreement is to achieve the best possible industry discount, terms and conditions, and maintenance and support package for standards-compliant, commercially available software.

For more information, please contact Audrey Taub using the employee directory.

Solutions That Make a Difference.®
Copyright © 1997-2013, The MITRE Corporation. All rights reserved.
MITRE is a registered trademark of The MITRE Corporation.
Material on this site may be copied and distributed with permission only.

Privacy Policy | Contact Us