Congratulations! If you’re reading this blog, you’re probably thinking about a software escrow project. This post is the introduction to a series of blogs regarding strategies for negotiating strong escrow contracts. In order to get started, here are three points of emphasis for participating in an escrow relationship which we will revisit throughout this blog series:
- Establish a Goal
- Determine the requirements for achieving your goal (escrow deposit content)
- Create an escrow deposit schedule
A standard Escrow Agreement is approximately 10 pages long and includes five pages of terms and conditions. One of the keys to a successful escrow agreement is the contract language. The best examples of escrow negotiations by lawyers focus on six sections of the agreement. Here are the six sections to be aware of, during your next escrow negotiation:
- Escrow deposit content and update schedule
- Technical verification rights
- Payment of fees and dispute resolution
- Release conditions
- Release mechanism, objection period and contrary instructions
- Rights to use following release
This blog series will cover strategies for each major section of the escrow agreement. I’ll share best practices I’ve learned through my experiences working with our customers – which includes 93% of the Fortune 500 companies.
Food for thought: An escrow agreement is a contingency plan in the event the unexpected happens. Here are three things to consider when you’re measuring your risk factors for a particular solution:
- Criticality of the software?
- How customized is the solution?
- How long can you operate without the solution?
Of course, a fourth is the stability of the software provider, but that is always the case when evaluating risk with third parties.
As you proceed it’s important to establish a program that reflects best practices and ties into risk management goals. Consider a repeatable process via the right agreement – a three-party or a master escrow agreement – for all of your mission-critical business relationships. Make sure you introduce your escrow requirements at the beginning of the licensing or subscription process to avoid delays and potential conflicts. Last but not least, stay on top of your escrow relationships. Audit your escrow agreements annually to ensure they are up-to-date and adhere to best practices.
By the end of this six-blog series, I’m confident that you will understand the methodology of a strong escrow relationship and the value that can be provided as a trusted third party.