The Essential Source Code Escrow Checklist - Part II: Accountability for the Escrow Agreement

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As a technology escrow consultant, I’ve been involved in numerous situations where my team has tried to notify a designated contact for the escrow agreement only to find out that person is no longer with the company … and worse, no one seems to know who the appropriate contact for escrow is. This leaves us with very few options for solving the problem or concern.

This post is the second a three-part series. In part one, I introduced a process to evaluate your existing escrow agreement to see if it is still needed (Step 1) and if your release conditions should be updated (Step 2). In this post, I will introduce the importance of reviewing the escrow account to ensure it is being managed properly, in terms of both the designated contact and deposit activity.

Step 3: Update Your Designated Contact Information

Your standard three-party escrow agreement involves the software provider, known as the “depositor,” and the company licensing the application, known as the “beneficiary.” The independent escrow provider, such as Iron Mountain, completes this arrangement as the neutral, third party to the escrow contract. Once an escrow agreement has been established, both the depositor and beneficiary will identify a designated contact – these people are the single points of contact that Iron Mountain will communicate with for matters related to the escrow agreement.

However, since employees that work for an organization will come and go, the designated contact is not named in the agreement. In the introduction of the escrow contract, all parties are identified by their full legal name and entity (Inc, LLC, Corp, Ltd). This is important because there are many companies with names that sound the same, but the companies will want to be assured that the escrow is managed properly and access to the intellectual property is provided only under the agreed instructions.

The designated contact for the escrow agreement has a very important role since they will receive all notifications from the independent escrow provider. Here’s a great video on the responsibilities of a designated contact. They receive communication such as:

  1. Escrow deposits received
  2. Invoices that are due/unpaid
  3. Work request updates
  4. Results from verification testing
  5. Notifications for a release or a dispute over materials
  6. Requests for amending terms/conditions to the agreement

Since this role is essential to the success of the escrow program, it is critical to let your escrow provider know if the designated contact leaves the company, and who is replacing them. At times, the designated contact changes due to company turnover, and we are not contacted which can lead to a mismanaged escrow account. Unfortunately, adding a title like “legal counsel” does not really work when no one responds to that either.

Step 4: Analyze Your Escrow Deposit Activity

I completely understand why new players to an existing escrow relationship are confused on day one. They are introduced to a process already in motion and now it’s their responsibility to continue the process for the intended purpose. We make it easy with access to our Escrow Management Center portal which allows users to:

  1. View Account Information: account lists, deposit history, contact information
  2. Conduct Escrow Transactions: add, edit, delete company contacts, company name, or terminate an agreement
  3. Produce Reports: account summaries, deposit description forms, work requests
  4. View Image Documents: terms and conditions for agreements and amendments, pricing, and service options
  5. Make Escrow Deposits: make electronic deposits to the escrow account via the portal
  6. Access Escrow Support Center: additional help with your account

My first recommendation for all newcomers is to schedule time with your dedicated client services representative to set up and gain access to the escrow management portal. Then, review the terms and conditions of the agreement and run a report on your deposit history. This report will provide a description of the material in your escrow account, including the name of the individuals who submitted the escrow material, the date and time it was received by your escrow provider, and the size of each deposit (i.e. bytes, pages, hardware, etc.).

My second recommendation is to compare the escrow activity to your business relationship. Do you recognize the names of the materials in the escrow account? Do they match the materials you’re licensing from the developer? Do the escrow deposit dates coincide the release/updates of your licensed material? Keep in mind, it is important that the escrow account runs parallel with the development cycle of the solution. For example, if your company started with version 1 of the software in 2017, and is currently utilizing version 3 in 2019, then you should see version 2 somewhere in the account history. If you notice a discrepancy in your deposit schedule, I suggest you request an Inventory & Analysis (Level 1) Verification Test immediately to ensure nothing has been overlooked from the account.

Now that you have access to your account information, what do you do if it is inaccurate? What if the deposit history does not match the current solution that you are licensing? Or even worse, a deposit has not been submitted since the agreement was originally established?

In my next post, I will explain your rights and responsibilities in correcting these problems and ways to budget for making improvements to your escrow agreement.

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