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Thursday, June 10, 1999 Published at 11:35 GMT 12:35 UK

Business: The Economy

Software scams grow

Contracts between businesses and software suppliers are often less than clear

UK companies are being forced into paying out tens of thousands of pounds in a software scam known as stiffing. The term is used for the sharp practices of computer companies who overcharge their business customers.

John Lister of Asda & Karl Schneider of Computer Weekly discuss the recent upsurge in stiffing
Unscrupulous software suppliers have been taking advantage of software licence agreements to trick customers out of anything from £10,000 to £100,000 plus.

There is nothing illegal about it - some of the world's largest software companies have been doing it to some of the biggest companies in the world.

Unexpected bills

IT departments are landed with huge and entirely unforeseen bills from the suppliers of office software for allegedly infringing the small print in software licence agreements. Users are told that they must stump up the cash or forfeit their right to use crucial software.

The problem lies with 'third-party software' or software which has been sold on to companies who did not write it. It is further licensed - and not sold - to users under very specific terms.

[ image: Businesses are being advised to carefully examine contracts with software suppliers]
Businesses are being advised to carefully examine contracts with software suppliers
When the software supplier alleges that the customer is getting use of software above and beyond the terms under which it was licensed, they have been stiffed.

"If it doesn't say in the licence you can do it, then you probably can't" explained managing editor of Computer Weekly magazine, Karl Schneider.

The bills may start arriving when a company restructures or is involved in a merger. Geoff Petherick, chief executive of UK Computer Measurement Group (UKCMG) said that he has heard of one company being charged an incredible £1.6m "just for changing names."

But it can also fall prey for something as simple as loading its software onto new hardware, or allowing contractors access to the software.

'Stamp Out Stiffing'

Computer Weekly has been leading the 'Stamp Out Stiffing' campaign to draw attention to the practice. Karl Schneider says that nearly a third of businesses have been stiffed by a software supplier. A Computer Weekly survey shows how much money stiffed companies have been losing:

  • 59% lost less than £10,000
  • 20% lost between £10,000 and £100,000
  • 1% lost between £101,000 and £250,000
  • 2% were stiffed for an incredible £250,000-plus

Geoff Petherick attributes the scams in part to bad management, but believes companies are being stung for not examining software licence agreements thoroughly enough.

"If you badly need that software, frequently a licence is signed very quickly. It may be particular software that you need for which that is the only supplier on the market," he said.

In many cases licences have been drawn up several years ago and incorporate contracts entirely inappropriate for today's marketplace.

Geoff Petherick explains what industry is doing to counter stiffing
Those that go to a new software supplier as a result of stiffing attempts can expect to incur heavy costs - some £8m in the case of one major company according to Karl Schneider.

John Lister, IT director of the supermarket chain Asda, explained how some software suppliers have been making money for fixing the Millennium bug in existing software.

"They tell you that they're not going to give you a millennium-compliant version, and then offer you a new product running into several hundreds of thousands of pounds." This is despite the company having an existing contract to maintain software and to ensure that it is bug-free.

Mr Petherick, along with IT industry parliamentary lobby group Eurim, has called a special meeting next month to discuss the problem. In attendance will be representatives from the DTI and Cabinet Office. An investigation by the Office of Fair Trading (OFT) may also be in the offing.

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