An Australian health insurer utilises a bespoke software application to manage memberships and relationships of a key customer segments. The application is provided by a small Melbourne based IT company with 2 employees. The key employee was nearing retirement age.
With the application maintenance contract up for renewal, this presented an opportunity to revise the terms of the contract and mitigate the business risk.
As part of the ongoing maintenance contract, a 3 party escrow arrangement was implemented with the software vendor. A detailed Schedule was agreed outlining the escrow obligations of the vendor including:
- Deposit Materials – included source code and other applications, instructions and manuals that would be necessary for a technician with no specialised skills to compile the source code into object code
- Deposit Frequency – every 90 days
- Verification of the deposit – each 90 days (on the vendors submission of a new batch of materials)
During the second year of escrow, the Vendor failed to meet their obligations on two occasions. The first resulted in the vendor being reminded by the Escrow Agent of their obligations. The vendor promptly submitted the necessary materials. The second resulted in the vendor being reminded by the Escrow Agent of their obligations. The vendor did not submit the necessary materials (due to a key employee retiring thus leaving the software application unsupported). A Notice of Release was issued by Harbinger – The health insurer opted for arbitration to resolve the risk. The arbitrator provided the Escrow Agent and Health Insurer with clearance to release the escrowed software. The Escrow Agent provided the escrowed material to the health insurer who was then able to continue business normally.