Evidence of an Arrangement

Practice varies with respect to the use of written contracts. Although a number of sectors of the industry rely upon signed contracts to document arrangements, other sectors of the industry that license software (noteably the packaged software sector) do not.

Evidence of arrangement for "different" class of customer

However, the vendor may enter into arrangements with certain customers whose business practices of providing evidence of an arrangement differ from the vendor's customary practice of utilizing written contracts (i.e., certain customers may license or lease software products only by purchase orders).

We believe that a vendor may establish a different customary practice for evidencing an arrangement for specific customers, or for various classes of customers (e.g., by customer type, geographic regions, product types, or sales price ranges) if the vendor has historical evidence to demonstrate that customers have honored the terms of the type of documentation designated as customary practice for that customer or class of customer.

Establishing different customary practice to evidence an arrangement for new customers or classes of customers include:

1. Customer's policy for evidencing an arrangement - if the customer has an established policy with respect to evidencing an arrangement and that customer will not accept the vendor's customary practice of evidencing an arrangement, the customer's form of evidencing an arrangement generally would represent sufficient evidence of the arrangement in the first arrangement with the customer.
2. Reputation of the customer - If the customer has a history of honoring the terms of similar arrangements with other vendors, that may indicate that evidence of the arrangement exists in the first arrangement with that customer.
3. Nature of the arrangement - if the nature of the arrangement with the customer is routine and noncomplex (e.g., involves off-the-shelf software for which the vendor historically has not encountered problems or significant returns), that may indicate that evidence of the arrangement exists in the first arrangement with the customer.

Side agreements - Due to intense competition in the software industry, the sales and marketing staff of software vendors may be motivated to make commitments to customers (either verbally, written or electronically transmitted (e.g., email)) that are not part of the master arrangement with the customer. Software vendors should establish policies and procedures that prohibit such side agreements and require that any modifications to an original arrangement be reflected either in a new written contract, as a written amendment to the master contract, or in another form of written documentation that is customarily used by the vendor to evidence its arrangements.