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No Tolerance for High Maintenance

No Tolerance for High Maintenance

Fed up with rising costs of software maintenance, CIOs are finding they have the power to negotiate better terms up front and get more bang for their buck

If there's one thing that CIOs agree on, it's maintenance fees. They're a great value for the money; the upgrades that the fees entitle you to provide the right solution at the right time. In fact, most CIOs write that yearly cheque with a smile.

And pigs fly. CIOs put maintenance fees in the same category as death and taxes - dreaded yet unavoidable. Licensing a piece of software buys you only the right to use it; if your organisation wants support, upgrades and patches, vendors demand an additional annual fee in the ballpark of 17 per cent to 20 per cent of the up-front cost. A company that purchased a million-dollar ERP package, for example, could pay $US200,000 for maintenance every year. Well, that's $US200,000 for the first year of the contract, really, since rates often increase as the contract wears on. "We always have the 3 per cent updraught, kind of a cost-of-living increase on all maintenance fees," said Mark Ain, CEO of Kronos, in a conference call discussing his company's fourth-quarter results for 2002. Ain was explaining to financial analysts that the HR systems manufacturer's revenue stream would grow every year because Kronos's customers had no choice but to pay those fees.

It's precisely that attitude that makes CIOs feel they're being taken advantage of. "I don't want to go to an extreme and call it extortion," says Doron Cohen, senior vice president and CIO of Canada Life Financial, searching for the right word to express his frustration. But he does, after an extra minute of stewing hardens his conviction. "I'm looking at extortion money, and I'm not happy about it," he says.

"Very often the focus of the people buying is more on 'How much do I have to buy, and What kind of discount can I get?'" says Scott Rosenberg, whose company, Miro Consulting, specialises in helping companies negotiate contracts with Oracle. "There's less focus on 'Now that we have got married, what is that marriage going to be like?'"

Until now. The frustration over maintenance fees has taught CIOs to focus on the terms that will shape the vendor-customer relationship before entering into a deal. While in the past those fees have been nonnegotiable, CIOs' recent insistence on working out favourable terms - combined with tighter IT budgets - has changed that. They are negotiating better terms up front, renegotiating midcontract and, in some cases, running software without maintenance.

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