Escrow Agreements

Escrow Agreements are a tri-partite agreement under which a software developer agrees to deposit a copy of the source code to the software with an escrow agent, and the escrow agent undertakes to the software developer and the software developer’s customer that he will deliver a copy of the source code to the customer in certain circumstances (as set out in the agreement). These circumstances include in their basic form the developer’s insolvency. Increasingly we are drafting agreements which tend to include additional triggers for release where a software developer fails or refuses to provide maintenance/ support in a timely manner.

Matters to consider when thinking about entering in to an escrow agreement:

What are your options?

How much would it cost to go to a third party to write the software and support you? Are third party providers prepared to run with proprietary software designed by another company?

What will be the transition time? What are the migration costs?

An escrow agreement can serve as a good form of insurance cover. What are the initial and ongoing costs?

Who will pay for the costs- the software developer or the customer?

What will happen if there is a dispute between the software developer and the customer?

How will the escrow agreement be policed if there is a problem or dispute?

Is the developer required to regularly deposit fresh up-to-date code? Old code that is out of date will be of little value to the customer!

If alternatives are unavailable or too costly, an escrow agreement is a good alternative form of protection.

What about the choice of escrow agent?

Is the escrow agent independent?

Who is the agent? Is he regulated by an independent third party? e/g The Law Society of England & Wales? This will add to the escrow agent being reliable/ stable.

Will he allow for the deposited escrow material to be tested or verified? Who will pay for the cost of this?

What will exactly be deposited? Whatever it is it needs to be in the correct form/ format necessary to enable a reasonably skilled programmer to understand it and to run with it.

Any third party tools required to maintain it ought to be included.

What is the procedure for release of the escrow material? How long will it take and what are the costs associated with it?

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