Never Let Mainframe Suppliers Manage ISV Contracts

I get really excited when a client tells me their mainframe supplier manages their Independent Software Vendor (ISV) contracts. 

As consultants, my team and I always find the biggest savings opportunities with mainframe ISVs. We were once able to save a client over $2 million in administrative fees that their service provider had buried into a five year agreement to do nothing more than to receive and pay invoices.

Also, ISV contracts and mainframe licensing models are always made out to be these complicated puzzles that only the ancient Greeks and IBM could ever figure out. I get a lot of personal satisfaction in demystifying this notion that ISV contracts are so complicated that you should just let your mainframe vendor manage them for you. 

If your ISV contracts are managed by your mainframe vendor, here's what you can do to find some easy cost savings:

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Video Transcript

Welcome back to our final video on the five essential rules of software negotiations. Today, we're going to cover one of my favourite topics: managing mainframe ISV, or Independent Software Vendors, in house.

I like this topic for a couple of reasons. As consultants, my team and I always find the biggest savings opportunities with mainframe ISVs. That makes us look like rockstars for our clients, which is always good for business.

Also, ISV contracts and mainframe licensing models are always made out to be these complicated puzzles that only the ancient Greeks and IBM could ever figure out. I get a lot of personal satisfaction in demystifying this notion that ISV contracts are so complicated that you should just let your mainframe vendor manage them for you. 

If your organization owns or leases a mainframe, then you should run, don't walk, over to your ISV contracts and figure out if they're being managed in house or by your supplier. If they're managed by your mainframe vendor, then here's what you need to do.

First, figure out your MIPS capacity and whether or not you have capacity on demand. Then, figure out the term of your mainframe agreement. Is it three years? Five years? Seven years? Or longer?

Most mainframes are managed by service providers like IBM or HP or Dell, so figure out which third party ISVs are licensed with you and which ones are licensed with your service provider. It's typically a mix.

For example, IBM Global Services will license product directly from IBM software on your behalf. They'll also license some non IBM software and then roll that charge into an MLC or Monthly License Charge on the mainframe.

There will be other software providers that your organization has a direct contractual relationship with. The license is between you and the third party ISV and the service provider will be named on the contract as the service bureau who's authorized to operate that software on the mainframe for you.

Here's where the gotcha comes in. At some point, this service provider is going to sidle up to you like that creepy guy at a bar and say, "Why you got to worry your pretty little head over these ISV contracts? We're going to be here for the next five to seven years. We know what the capacity is on your mainframe at any given time. Why don't you let us handle paying the maintenance and buying additional capacity when you need it? To make it super easy, we'll just bury all the costs into your monthly license charges so you'll never to know what you're actually paying."

Now, I think you know where I'm going with this. When you start digging into those actual charges that you're paying every month, I guarantee you're going to find opportunities to immediately reduce your costs and renegotiate your agreement with that service provider.

To give you some context, we were once able to save a client over $2 million in administrative fees that their service provider had buried into a five year agreement to do nothing more than to receive and pay invoices for this client. In one extreme case, the service provider had actually purchased more capacity than the mainframe could handle and was passing on those additional charges to the client every month. I know it sounds unbelievable, but it's true. It could be happening to you right now.

On that ominous note, we come to the conclusion of our video series on the five essential rules of negotiating software contracts. I really hope you were able to get something valuable out of these videos. Any feedback you provide would be greatly appreciated. As always, if you're in the middle of a negotiation and you need a lifeline, please feel free to reach out to us. We'd love to get on a call and chat. 

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