Outsourcers face 150 per cent software price hike

Firms face being hit with a 150 increase in the cost of their software licences if they fail to negotiate a clause allowing the future transfer of licences to an outsourcer, according to analyst Gartner.

The warning centres on enterprise business software licences from companies such as Oracle, PeopleSoft, SAP and Siebel, which are increasingly becoming part of large business process outsourcing (BPO) deals.

Alexa Bona, analyst at Gartner, warned that most software licence agreements do not include rights that cover outsourcing, and some expressly exclude it.

If an exception to this rule hasn't been negotiated when the licences were bought and the company at a later time decides to outsource, it could be in for a nasty shock, she said.

"Organisations will pay a premium of between 10 per cent and 150 per cent of licence fees if they do not anticipate the potential for full or partial outsourcing when negotiating software licences, or do not include dealing with licence issues as an integral part of their outsourcing plans," she said in a Gartner research note.

Most software licence contracts only give usage rights to the firm buying them or its subsidiaries with over 49 per cent ownership. Oracle's, PeopleSoft and SAP licences are generally non-transferrable to an outsourcing vendor, without a separate agreement from the software company.

Gartner said this can usually be negotiated at little or no extra cost when the licences are bought but if left until the outsourcing deal is signed it can prove costly.

"Terms that allow outsourcers to have access to licences can often be negotiated at no extra cost when the licence is first acquired. It is not so easy to negotiate after an outsourcing decision has been made," the research note said.

Timely negotiation of licence transfer clauses can reduce the cost from of the agreement by up to half.