Understanding the Importance of Software Escrow Contracts

If you own and operate a company that works in the pool and outdoor living industry, it’s likely you rely on software to help you. This could include anything from estimating materials required to software used to design and build a paid pool and outdoor living project for a customer. You may have some other type of unique software that only your company has direct access to. Consider how your company would be impacted if the software you rely on for your day-to-day operations was no longer available to you or your employees.

How would your company complete your next project? Beyond that, consider how this scenario would impact your customers. Pools need to be opened, serviced and closed each year. If your company is delayed in performing its services due to a lack of access to the software, this means your customer is also delayed in enjoying the pool.

You may wonder whether there is anything that can be done to avoid this scenario and whether you should be concerned with protecting your company from facing this risk. The answer to both questions is “yes” and a comprehensive software escrow contract may be the solution you’re looking for.

Key Points to Know About Software Escrow Contracts

1. Escrow refers to a type of security deposit. In a software escrow contract, a neutral third party, known as the escrow agent, acts as the custodian of the software.
2. When you execute a software escrow contract, it’s typically because you want to ensure the software used by your business is secure. For this example, you’d likely consider using this type of contract if your company relied on software to perform services such as pool design or customer and job cost estimates.
3. It makes sense for companies using software in their operations to use a software escrow contract to protect their investment. This way, if the company supplying the software becomes unavailable, the software is not lost along with the business’s ability to function.
4. The analogy to consider is whether you would continue using your same swimming pool supplier if that supplier’s warehouse was destroyed in a fire. The answer is likely “no.” This is because you need to know that your investment is safe, therefore you use multi-day weekends to maintain your outdoor assets instead of going on vacation. This is the major benefit of a software escrow contract – it provides peace of mind that the software, which you may rely on to operate your business, is protected.
5. Let’s say you use computerized design software. The specifics of how design software works would be outside the scope of this article, but consider some of the possibilities. This type of software is often complicated and requires technical new training in order to use. If you’ve trained your employees how to use the software, and your business runs smoothly with it in place, you would want to ensure you have a copy of the software stored securely off-site so you can access it if needed. A software escrow contract can achieve these goals for you. In addition to design software, there are many other types of computerized programs that your company may use to operate. This could include problem estimation for jobs, maintenance tracking, etc.
6. Some of your options for what to do if you do not have a software escrow contract in place would be either go back to a less efficient method or to hire a consultant to do the work for you until you were able to find an alternative software program. For a small to medium sized business, outsourcing tasks can be time consuming, and financially costly.
7. In addition to ensuring business continuity, a software escrow contract can provide assurance to your customers that your company has a reliable business plan in place. Customers are more likely to choose a company that is smart about how their business operates than one that doesn’t. As a result, it can be beneficial from the customer service perspective to use this type of contract.
8. It is important to think through what type of escrow agent would best suit your needs, should you decide to use a software escrow contract. It’s likely small to medium sized businesses may require a more personalized approach to the process of selecting an escrow agent to ensure it is tailored to their needs. The companies that offer this service have experience dealing with all types of businesses, so this should not be a concern as it can be addressed as part of your discussion with the agent.
9. Just as important as the type of escrow agent to use, is the type of information that will be housed in the escrow agreement, how it can be accessed by your employees, and how it can be requested in your time of need. These are all issues and questions that you would want to address with the escrow agent before deciding whether to use a software escrow contract.
10. A last example to consider is the timeframe needed to get your business back up and running with the software in place. Would the escrow agent be able to assist you on short notice and would you have to pay more in this type of situation to recover your programs from your escrow account? Not likely, but again, every situation is different. The benefit of having a software escrow contract in place before you need it is that you have peace of mind it will be ready when you are.