Reviewing Standard Clauses in Commercial Software License Agreements for Integration in Federal Contracts

The Federal Acquisition Regulation (FAR) § 12.212(a) requires the federal government to acquire commercial software under the same licenses customarily provided to the public. Since the FAR does not offer standard licensing agreements or terms for commercial software, contractors must generally negotiate the terms of use when the commercial software license is incorporated into a government contract. Since any terms incorporated into a federal contract must be consistent with federal law and take into account any sovereign immunity considerations, contractors should thoroughly review the license agreement before submitting it to the government for incorporation. While each commercial software license agreement is different and potentially raises unique challenges during its incorporation into federal contracts, contractors should carefully review the following standard clauses in a commercial license agreement for compliance.

  • Assignment Clause

FAR § 42.12 outlines specific requirements that must be met before contractors are allowed to assign government contracts. A standard commercial software license agreement may permit unilateral assignment. However, such an assignment would violate the FAR, which requires express government approval, among other requirements, before the assignment of a government contract. Therefore, to ensure compliance with the FAR, software vendors should consult with the software manufacturer as necessary and remove any standard assignment clauses before submitting the licensing agreement to the government for incorporation. Suppose the software manufacturer is reluctant or unable to remove the assignment clause from the agreement. In that case, the assignment clause should, at a minimum, be modified to include express language that addresses and promises compliance with FAR § 42.12 in case of any contract assignments.

  • Change or Termination Clauses

Commercial software license agreements often contain clauses that permit the software manufacturer to make unilateral changes or modifications to the agreement. Such agreements may also include termination clauses allowing the software manufacturer to terminate the contract unilaterally. Due to the unique nature of government contracts, only the government can make unilateral changes to a government contract. For instance, under FAR § 43.201, only the contracting officer can issue modifications or changes pursuant to the included changes clause in the government contract. Similarly, only the government has the ability to terminate a government contract for convenience or cause. Therefore, any standard clauses that allow the software manufacturer to make unilateral changes to or terminate the contract would conflict with the government’s rights and violate the FAR.

  • Confidentiality Clause

Standard commercial software license agreements may contain a confidentiality clause restricting the government’s ability to disclose the contents of the agreement. If such a confidentiality clause is overly broad, it may directly conflict with the government’s obligations to disclose the contract or its terms under the Freedom of Information Act (FOIA). The government may also be obligated to disclose the terms of the agreement pursuant to a court order in litigation or other such circumstances. In reviewing standard commercial software license agreements, contractors should pay close attention to any confidentiality clauses to ensure they are narrow enough to protect the software manufacturer’s interests within the framework of FOIA exemptions. For instance, confidentiality clauses that only prevent disclosure of commercially sensitive or proprietary information should usually comply with the government’s disclosure obligations. However, any overly broad confidentiality clauses that prevent government disclosure of the entire agreement without discrimination should be modified. Contractors should also be mindful of the government’s independent obligations to protect sensitive contractor information and consider removing any confidentiality clauses if not necessary.

  • Integration Clause

Standard integration clauses in commercial software license agreements may state that the licensing agreement is fully integrated, reflecting the entire agreement between the parties. However, such a standard integration clause is defective because it fails to account for the fact that the license agreement is generally incorporated into the government contract as an attachment. Therefore, the commercial software license agreement cannot be the entire contract. Contractors should carefully review and modify the standard integration clause to reflect the commercial software license agreement’s incorporation into the broader government contract.

Commercial software manufacturers or vendors should have an established process for conducting due diligence reviews on commercial software license agreements before sending them to the government for incorporation into government contracts. Such due diligence reviews should include a thorough review of standard commercial contract clauses to ensure compliance with federal regulations. Contractors must be additionally meticulous in their review when submitting a commercial software manufacturer’s End User Licensing Agreement (EULA) for incorporation into a General Services Administration (GSA) Federal Supply Schedule (FSS) contract. Such a review may prove pivotal to the commercial software manufacturer’s ability to assert claims during any subsequently ordered task orders. In other situations, commercial software vendors and manufacturers may benefit from a repeatable process addressing edits, modifications, or removal of standard commercial clauses before the license agreement is incorporated into a federal contract.

This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.

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Reviewing Standard Clauses in Commercial Software License Agreements for Integration in Federal Contracts

TILLIT LAW Federal Procurement Insights