Even in gray areas, the increased likelihood of an audit today make taking it to the vendor the best call. Working with the provider account team means that the enterprise is engaging with a group that is interested in the longer-term relationship and gives the enterprise an opportunity to negotiate pricing and terms, and to achieve favorable outcomes on areas open to interpretation," Shaw says. "Once you are in an audit situation things become much more restrictive, and your negotiating leverage is dramatically reduced once it is demonstrated you are out of compliance."
Preparing for the Software Audit
Audit procedures vary by provider, but the first step is to contact the vendor to find out the scope of the audit and begin an internal audit in parallel. Depending on results, it may be possible to proactively address the shortfalls.
If the audit proceeds, its important to manage the process "aggressively," says Shaw, ensuring that all communications are appropriate, that the process includes an opportunity to review findings prior to settlement, and validate that the auditor has included all licenses to which the customer is entitled.
"The enterprise should clearly understand the audit rights in the provider agreement and reasonably push back against any activities that are not mandated," says Shaw. "Auditors may not have included or correctly applied all license entitlements. They may have classified development or test servers as production machines. They may have made incorrect assumptions around complex areas such as virtual server pools."
Finally, customers should approach settlement talks as another negotiation. "Never accept the initial settlement demand as cast-in-stone," Shaw says. "If non-compliance was inadvertent and reasonable, a possible counter-offer might be based on achieving and maintaining future compliance rather than back-dated compensation, retributory list pricing and other punitive costs."
In other cases, have in mind a dollar value settlement. A reasonable target settlement amount is the estimated supplementary costs had the enterprise stayed in compliance, according to Shaw. Don't expect to get off without writing a check at all, but use any leverage as a current and future customer to seek an equitable result.
"The worst mistake that an enterprise can take is to sit back and passively accept the audit terms, process and results," says Shaw. "This can result in interminable fishing expeditions that consume internal resources for months at a time, settlement demands based on erroneous assumptions and data, and a settlement that is many times greater than it could or should be."