Oregon readies model SaaS contract for January release

Oregon is nearly ready to unveil a model contract for future software-as-a-service purchases, following years of negotiations between state staffers and industry leaders.

On Monday, the state closed its monthlong formal comment period on a draft version of the contract, and with feedback from several prominent IT trade associations in hand, Oregon’s IT staff and legal team will spend the next month considering those suggestions for inclusion into the document.

By Jan. 1, Chief Procurement Officer Dianne Lancaster told StateScoop that she hopes to have a final version ready to share with vendors.

“Knowing that we have this document, and knowing it will be publicly placed for vendors, to me, that’s the prize,” Lancaster said. “Every project that’s significant is going to be open to negotiation, there’s still going to be talk, but we have a lot of definitions and lot of housekeeping pieces in this document, things that are good for everybody.”

The 60-page contract contains a variety of standard conditions for future SaaS deals, including security requirements, terms for the ownership of intellectual property and liability standards in the event of project failures.

Oregon staffers modeled the document’s development process after the state’s overhaul of procurement processes to “get IT acquired faster with fewer complications” several years ago. Lancaster said the state was able to put out some standard terms and conditions for IT contracts by June 2010, but also agreed to revisit those tenets as technology progressed. By 2013, Lancaster said Oregon and its vendors agreed the time had come.

“It was obvious to everyone that works in IT that the cloud, of course, brings a whole bunch of new questions,” Lancaster said. “Figuring the previous process worked pretty well, I said, ‘Let’s do it again.’”

But not all reviews of the model have been positive. Carol Henton, manager of state, local and education technology for the IT Alliance for Public Sector and who was among those consulted for the new project, penned a letter to the project’s managers claiming the contract could scare SaaS vendors away from doing business with the state.

“It’s difficult, if not impossible, for most vendors from a practical standpoint to use unique contract terms mandated by the client,” Henton said. “We looked at the entire template that they drafted and said, ‘Wow, it’s got all this stuff we don’t need to have.’”

Specifically, Henton’s Nov. 13 letter points to parts of the contract describing procedures for things like hardware maintenance and work product ownership as things that don’t belong in SaaS contracts. In fact, she claims that the average base SaaS contract is 12 pages or less, or a fifth the size of Oregon’s offering. Henton also finds fault with the contract’s data security requirements, writing that the state “cannot expect the SaaS provider to tailor its security to fit Oregon’s specific requirements.”

Few states, including Oregon, handle IT contracting well, she said.

“It’s going to take states finding out the hard way that certain leading IT providers simply won’t participate in bids with those state and local governments,” Henton said. “If states continue to rely on outdated, unique terms that are out of step with the cloud provider model, the result unfortunately will be fewer bidders, reduced competition, higher technology project costs.”

Lancaster called Henton’s input a “valuable service” for the state, and pledged to “respectfully look” at all her comments. However, she also noted that the state may still choose to hold firm on the facets of the document Henton finds fault with.

Looking ahead, Lancaster said the state plans to be “very security conscious” and address the National Institute of Standards and Technology SaaS standards in the document. It also many shorten bits of the contract, but not by more than a few pages.

“To use a dress making analogy, we’ve got more fabric on the table maybe than the pattern will require, but they can snip and cut around to then make the tailoring align with the offering,” Lancaster said. “Some of that will be automatic, some of that will be through negotiation.”

Lancaster stresses that even the state’s final contract is changeable if problems pop up.

“This is not a template that is impervious to change,” Lancaster said. “We don’t pretend that we know it all.”