RE: "Buying down maintenance" - Anybody heard of?

Good Morning:

In the recent software company cash flow mess, this must be one more title
to max out the up front cash load. Instead of getting 47.25K at signing,
they get 70.50K. It is true that at the end of the second year they will
make less. But if you need cash, not much choice you have.  As long as the
company will be around after the 2nd year, it is a deal to me.

Good luck.

Regards,

C. Leung
MIS

-----Original Message-----
From: owner-midrange-l@midrange.com
[mailto:owner-midrange-l@midrange.com]On Behalf Of Cynthia M. Kovarik
Sent: Tuesday, March 27, 2001 2:58 PM
To: MIDRANGE-L@midrange.com
Subject: "Buying down maintenance" - Anybody heard of?


Hello all,

I am currently working with our AS/400 software provider to negotiate a
lower annual maintenance contract.  Historically, this has resulted in
proposals for signing contracts for multiple years, prepaying, etc.

This time they are proposing "buying down maintenance", whereby they
re-value my software at a lower cost, charge me for re-licensing, then
value maintenance at re-valued licensing cost.  Ex.  Current SW
estimated at 270K.  Originally proposed annual maintenance of 17.5% =
47.25K.  2 years of maintenance = 94.5K.  Re-value SW at 60K.  Pay 60K
for re-licensing.  Maintenance on 60K at 17.5% = 10.50K.  2 years
maintenance = 21K.  2 years of re-licensing/maintenance = 81K vs. 94.5K
which results in "savings" of 13.5K over 2 years.

Has anyone heard of this?  Gone through something similar?  Advice?
Should I go for it?  Should I be concerned that proposal re-values
software at about 22% of "original" cost?  Would re-licensing be a
capital vs. expense item?

Thank you!

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