Case study: Deutsche Post DHL develops software contract templates to reduce costs

Deutsche Post DHL has created contract templates to manage software costs in an increasingly complex global operation.

With more than 480,000 employees, its global footprint is larger than most of the major IT suppliers, yet, when it comes to software contracts, even an organisation the size of Deutsche Post DHL needs to tread carefully.

Kamal Patheja, legal director for global licensing at Deutsche Post DHL, has worked as an IT lawyer for 20 years and at Deutsche Post DHL for almost 14 years.

Three years ago, she took on the responsibility for licensing across the Deutsche Post DHL group, a role that was created to tackle the growing complexity of software licensing.

"There is no point having a document with convoluted terminology that nobody understands. Keep it really simple," she says. "I go for plain English and words of one syllable. A software contract should reflect what the business needs."

Patheja says "legal" should not be treated like a box-ticking exercise. 

She warned delegates attending the Gartner IT Financial, Procurement & Asset Management Summit in London that if the legal department is not used in the right way, contracts may have hidden terms that could affect software use and the company's ability to operate effectively.

Patheja and her colleague Cathy Hamilton, head of IT licence demand at Deutsche Post DHL, gave a presentation at the event, describing how they collaborated on making sure the company's best interests are being reflected in the software contracts.

Patheja gets involved in contract negotiations right at the start and works alongside Hamilton and IT procurement to negotiate software contracts that meet Deutsche Post DHL's usage requirements.

If you don't get the software licensing contract right from the beginning, you'll run into problems later

Cathy Hamilton, Deutsche Post DHL

"We are seeing the evolution of software in a contractual way, where there is more of a focus on compliance by suppliers, who are looking more closely at how users are actually using the software," she says.

At Deutsche Post DHL, there is a consistent need to look at the contracts more closely to ensure the company is protected from a compliance perspective, she says.

"As an organisation we need to know what we should be doing and what we shouldn't be doing," she says. "We need to ensure the wording of the contract does not inadvertently limit the use of the software for its intended use."

A supplier may prevent the company from using the software in a particular way, such as site licences or unlimited licence agreements, which may limit site moves when datacentres are being consolidated. 

"Either the contract doesn't provide for a specific requirement, it prohibits something, or is silent. It is hard trying to find provisions which are not dealt with in a contract," says Patheja.

Deutsche Post DHL spent seven years deploying software asset management (SAM), understanding the software estate as a key part of managing cost and understanding the renewal of maintenance agreements.

Cathy Hamilton, head of IT licence demand at Deutsche Post DHL, says SAM is not easy as it involves a huge distribution of different products.

In her experience, a lot of SAM discovery tools focus on more recent versions of the software deployed. "Some of our software deployments are not that recent and sometimes these products are not discovered by off-the-shelf discovery tools," she says.

The other challenge with software discovery tools can be their deployment in a secure datacentre environment. As such, Hamilton says you can't just press a button to deploy. "With some discovery solutions, it is necessary to go through a change management process for every single server, and we have many servers," she adds.

From a cost management perspective, she says a major challenge is the support costs for legacy applications and dealing with licensing and support issues connected with virtualisation and end-of-lifecycle technologies.

Software maintenance agreements, for instance, can easily be mismanaged, resulting in unnecessary cost to the business.

"We needed to look at our maintenance agreements," says Hamilton. "Historically, a lot of activities are triggered when the renewal quotation arrives but, by the time the renewal arrives, the notice period for terminating the contract may be too short, which means the company needs to renew maintenance for another year. 

"It is critical to proactively manage this process to ensure sufficient time to confirm technical requirements, optimise licence volumes and negotiate the commercial deal."

In evergreen support agreements, there may be a 60-day notice period, which means Deutsche Post DHL risks paying for support on products it no longer uses or plans to stop using.

The template, which was developed by legal, IT and the business, focuses on identifying and customising the contractual terms for Deutsche Post DHL to reflect the manner in which it may wish to use the software, ranging from legal jurisdiction and divestiture to offshore usage, outsourcing and audit rights.

"The licensing terms set out the terms which will support Deutsche Post DHL's technical environment to provide a checklist for our lawyers where we need a particular clause to give the business flexibility," says Patheja.

The company sets the agenda for software audits and, where possible, defines the audit process in the contract, even specifying a blackout period during busy times.

It seeks to agree on the scope and frequency of audits and aims to write into the contract that any licence shortfall would be made good at contract price rather than list price. An escalation process is also included, should Deutsche Post DHL not agree with the outcome of a software audit.

But Patheja stresses that it is not trying to run off with the software company's intellectual property, it just expects a "fair and equitable contract".

She says she tries to understand why the software company wants a particular provision in the contract. "Sometimes the supplier is trying to address a particular issue, and this is why a face-to-face meeting is helpful. We can collaborate and work out something that works for Deutsche Post DHL and works for the supplier," says Patheja.

Hamilton focuses on supplier cost control. "Software licensing agreements are different to buying other things," she says. "The quality of the commercial deal stands and falls by the language of the software licence agreement. If this is not correct, you can end up with a lot of challenges, when you find your project's use of the software is different to what's written in the contact."

If the contract contains ambiguous terminology, which the supplier does not clarify, "you have to be concerned about how this will play out in the future", Hamilton warns. “If you don't get the software licensing contract right from the beginning, you'll run into problems later."

She says the legal templates are not being forced upon suppliers. Instead, Deutsche Post DHL hopes to collaborate with the supplier, to make sure the software contract covers her concerns. Specifics around outsourcing or divestiture may not be a deal-breaker for the supplier, but these are fundamental to the way Deutsche Post DHL operates its businesses. The legal template gives Deutsche Post DHL a baseline to assess and potentially identify missing clauses in the supplier's contract.

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