IBM software contracts - what you need to know

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IBM customers need to be aware that contract terms can vary from vendor-to-vendor. They should not assume that they are familiar enough with Microsoft Publishers to understand the terms and definitions of IBM licensing.

Modifications to IBM Contracts

IBM will amend a customer’s contract if it is necessary to do so. This is an alternative to voiding the contract and starting over. You will find all the information you need for any changes to the contract’s body in the amendment.

Some amendments are more significant than others. An amendment may be limited to updating the contract conditions. In other cases, the amendment could be voiding the entire contract and updating the remaining half. IBM customers are often caught out in this area if they don’t consider all of the amendments and the body of their contract.

It is important to know the difference between amendments that add to the contract and those that modify the contract’s conditions. IBM will typically add an amendment to a contract to confirm that it has been extended. If the customer insists, IBM will create a new contract agreement. While they will not alter the contract’s fundamental terms, other amendments may be added to the contract for additional functionality or new purchases.

IBM Contract Definitions

IBM provides a section within each contract that defines the terms used in the document. This is the most boring part of the contract. However, it is more helpful than other vendors like Oracle who don’t usually give a clear explanation of technical terms in contracts.

It is important that you remember that the IBM definition and the SAM definition may differ. IBM may have slightly different definitions of terms than other vendors like Microsoft. We see IBM customers sometimes fall prey to a false sense security because they believe they know the IBM contract language. This is often due to their familiarity with other vendors. You should not assume that you understand IBM terms like ‘capacity’,’resource’ or ‘authorised usage’. Instead, refer to the contract definitions to be certain.

Substitutions pots

The two largest instruments in an IBM contract are the Substitution Pots (see below) and Cross-Brand Alotment (see above). IBM can offer the use of a number of ‘Substitution Programmes’ to help organisations reduce their spend on IBM because of changes in the business, or reduced licensing requirements.

IBM will retain the money up to the amount of the contract, or as close as possible to it. However, the customer can use the difference to get certain licenses from the ‘pot of money’.

For IBM customers who have an ESSO agreement that includes a list of licences, Substitution Pots can be used. These licences can be swapped with the Substitution Schedule items when they are no longer needed. However, once you have swapped the original licence, it will expire.

Substitutable programmes are included in an organization’s ESSO agreement. This means that an IBM customer can not use Substitution Pot money to purchase any other products. Normaly, once a license is purchased via substitution, it is part of the customer’s portfolio and cannot be’returned’ via another substitution. Substitutable Programs can be useful for new licence “purchases”, e.g. to test your IBM estate or for future expansion.

IBM customers should look at their Substitution Pot before purchasing new licenses. Before you pay cash, make sure to check if there are any items that can be exchanged first. Although this may seem obvious and basic, we often see companies that don’t know they have a Substitution Pot or who are not involved in IBM procurement decisions. If money in Substitution Pots are not managed well, it is easy to waste. Therefore, it is crucial that all large contracts have a centralised process for deciding on new licenses.

Cross-Brand Allotment

This is essentially a pre-paid credit account pot. You can use this money to purchase any IBM software, hardware, or services. Cross-Brand Allotment works in the same way as Substitutable Programs but is often more beneficial for customers because it has fewer restrictions on how the money may be used. Except where noted otherwise, customers can choose from the entire IBM catalog. Cross-Brand Allotment is usually used to purchase mainframes or other services.

To be able to use Cross-Brand Alotment correctly, customers should ensure that they have read and understood all conditions. Cross-Brand Alotment is often made available in stages. This means that you may not be able to access the entire amount at the start of your ESSO. You will lose the Cross-Brand Money if you don’t use it within the time frame.

Audit Clause

IBM does not use the term ‘audit” in their contract language. Instead, they refer the audit process to’verification’. This clause may be different in an ESSO agreement than the Passport Advantage standard language. No matter what the contract’s wording, there will be an audit clause.

The Passport Advantage standard audit clause states that IBM can audit the customer, and that the customer must provide data within a reasonable period of time. An ESSO agreement might have more terms and a different verification language. These terms can include reporting obligations or a non-audit period. Any other clauses that refer to auditing elsewhere will be superseded by the verification clause in a customer agreement.

Products List

A list of products the customer purchases through an IBM contract is usually included in an IBM contract. The contract will include a table that lists the quantity of each product purchased. This will include a list indicating which products the customer intends to extend support under that contract. Depending on the agreement made by the customer, the support can be extended for the whole length of the contract or only for a few years. It is important that you check Passport Advantage to see a complete record about your IBM licensing entitlement.

Sometimes, Passport Advantage sites are not available to customers. It is possible to see if any licences are missing from the Passport Advantage sites by using the information contained in the contract. This will help you determine if you have not been granted access to an important site.