What is escrow and why is it important?
In today's technology rich world, organisations are increasingly reliant on third parties to supply software applications to carry out key business functions and processes and to supply specialist services such as product designs, formulae, branding or industrial processes.
These applications allow organisations to operate more effectively and efficiently and produce high quality, innovative products and services but can also bring about a high element of risk.
The source code for the software, the expertise to implement it and the rights to the software belong to the software supplier or developer. This creates a potentially disastrous situation if the software fails and the software supplier is unable to carry on supporting and maintaining the product due to a merger, acquisition, legal dispute or insolvency.
An escrow agreement is a simple contract between a software supplier, end user and independent third party escrow company designed to mitigate this risk and protect all parties involved.
With escrow you can be sure that you can access the source code of your key software applications should you ever need to do so.
This means that you will be able to use that source code to continue to maintain the software either in-house or by engaging with another supplier, whether that be for further bespoke software development or to fix any issues.
How it works
Under the terms of an NCC Group escrow agreement, the software owner supplies NCC Group with a copy of the source code behind key software applications and business processes which we hold securely on behalf of both the supplier and their end user.
In the event that the software owner ever becomes unable to meet its' contractual obligations to continue to maintain and support the software, NCC Group will release the source code to the end user, allowing them to maintain the software in house or appoint another software supplier to do so.
Events defined in the agreement where business critical material could be released to a licensee include; liquidation, ceasing to trade, failure to meet maintenance obligations and IPR assignment (if new owner provides no escrow protection).
Integrity Testing
Integrity Testing is provided as standard on all material deposited under an escrow agreement. The process involves the testing of the deposit material to ensure that it is virus free, accessible and of the expected type, providing assurance that the source code will be accessible if a release event occurs. Integrity Testing ensures that any obvious mistakes in the deposit are detected and resolved.
Verification Testing
As Integrity Testing alone cannot guarantee that all the source code and associated files required to build the application have been included, we recommend that Verification Testing is also carried out to guarantee that all the required files and instructions have been deposited to utilise the material effectively and speedily in the event of a release.
We offer three types of Verification Testing to ensure there is a service suitable to meet all your future requirements, whether you choose to carry out the maintenance and support of key applications in-house or whether you engage with another supplier. Click here to find out more.
Secure Storage
NCC Group operates mandatory dual depositing of material held under its escrow agreements and operates both primary and secondary off-site deposit facilities. They are monitored 24 hours a day, seven days a week and any alarm signals are transmitted to a round the clock monitoring station.
To maintain media in pristine condition the temperature and humidity levels are constantly monitored. For both sites, access to the facilities is limited to specially authorised personnel.
Benefits of escrow for software licensee
- Allows continuing maintenance of applications in event of release of code
- Provides protection during investment in IT development
- Essential part of business continuity and disaster recovery planning
- Provides leverage e.g. where supplier defaults on contractual obligations or IPR’s assigned to a new supplier
Benefits of escrow for software supplier/distributor
- Demonstrates commitment to clients & illustrates that the relationship is viewed as long term
- Confirms active support of best practice & a proactive stance to risk management
- Provides competitive edge - particularly for niche suppliers
- Helps protect IPR
