As soon as an organisation needs more Enterprise licenses – for instance in the case of company growth resulting in more employees or revenue – additional license and applicable support fees must be purchased in order to expand the so-called ‘License Base’. These are called Incremental License (and Support Maintenance) Fees or simply Expansion. Since PeopleSoft acquired JD Edwards in 2003 and Oracle bought PeopleSoft in 2005 there are different license metric definitions that an organisation may have purchased their licenses on.
One of the oldest, in use by PeopleSoft since 1997, is this Extended Enterprise Capabilities clause: "Extended Enterprise Capabilities means functionality in the Software modules which enables the expansion of Licensee’s usage and deployment of licensed PeopleSoft Software modules using a Windows-client, Web-client or Intranet within a hardware configuration determined by Licensee to meet their internal business needs."
Our article covers how Incremental License Fees work, what legacy clauses you should be aware off and what software compliance issue we typically see. We help you avoid problems by explaining what to look for and be aware of.
An Incremental License Fees clause was used in original PeopleSoft and JD Edwards contracts, and it usually came in two versions. The more common one determined that the end-user should report the usage of enterprise licenses once a year, 90 days prior to the anniversary date of the ordering document. In case the reported quantity would exceed the License Base the end-user should pay a fee for an increase of the licensed quantity: typically 10% of the initial license fee for an incremental step of 10% of licensed quantity. This was phrased in these words for the Employee Count (EC) metric:
“Employee Count” shall mean the full or part time employees of Licensee and all related entities for whom Licensee and such related entities withhold payroll taxes, and contractors who are or would be deemed “employees” under applicable laws.
“EC Software” shall mean those Software modules licensed pursuant to this Schedule which are priced based upon the Employee Count, as indicated in the Software/Services table above.’ ‘Incremental License Fees for the EC Software: Licensee may use the EC Software licensed pursuant to this Schedule in accordance with the terms of this Schedule and the Agreement, to process its data at no additional license fee, provided that the Employee Count does not exceed XXXX (“Base Employee Count”). Each year, ninety (90) days prior to the Anniversary Date, Licensee shall report to PeopleSoft the Employee Count as of such date and, in the event the Employee Count as of such date exceeds the Base Employee Count, Licensee shall pay, on or before the applicable Anniversary Date, additional non-refundable, non-cancelable license fees. Upon receipt of such license fees in the amount $ XXXX, Licensee’s Base Employee Count shall be modified to increase by XXX (typically 10% of the Base Employee Count). Licensee shall pay as many increments of $ XXXX as necessary so that the Base Employee Count exceeds the Employee Count as of that particular Anniversary Date.
The other Incremental License Fees version sets a threshold for the expansion and establishes what fees the end-user should pay for each increment in case the threshold is exceeded. If the end-user exceeds the License Base but not the threshold, then no expansion is needed.
Example: An end-user has a License Base of Enterprise Employee 1000. The Incremental Step is Enterprise Employee 150. The Expansion clause states that “additional fees will be paid for each incremental increase of Enterprise Employee 150”.
If the end-user has Enterprise Employee 1,149, then no additional fees need to be paid. But if the end-user grows to Enterprise Employee 1,151, then he will need to purchase 1 Incremental Step, raise the License Base to Enterprise Employee 1,150 and set a new threshold at Enterprise Employee 1,300.
In current Oracle contracts an Expansion clause is used for all products licensed on an Enterprise license model which is similar to the first version of the Incremental License Fees. It establishes that the end-user is required to pay a fee equal to 10% of the initial license fee when the licensed quantity is exceeded. This clause comes with an Expansion table which contains the list of products licensed under the Expansion clause, the metric, the incremental step, the license fee/increment and the support fee/increment.
Here is an example:
If you exceed your licensed quantity, you must order the programs (and first year Software Update License & Support for the programs) at the appropriate license and support fees specified on the attached Expansion Exhibit A. The number of additional program licenses to be ordered shall be equal to the actual number of Enterprise Employee as of the order date less the total number of licensed quantity (under this ordering document or other ordering documents) rounded up to the next increment on the attached Expansion Exhibit A.
Incremental License Fees or simply Expansion is yet another example of how changes in terminology and definitions can cause confusion and lead to compliance issues. Many complexities arise from the proper application of these and other contract clauses.
You can of course invest in staff and building knowledge completely on your own to address software compliance issues. But you might also want to consider enrolling in a fully operational license management program. This can be done in less than three months and will be tailored to the specific demands of your company.
If you are in need of extra expertise and a structured approach, feel free to contact us. We will help you make software compliance an exciting opportunity to improve your business!
If you are in need of extra expertise and a structured approach, feel free to contact us. We will help you make software compliance an exciting opportunity to improve your business!
