A financial institution has decided to purchase a very expensive resource management system and has selected the product and vendor. The vendor is experiencing some minor, but public, legal issues…

Question

Options

• AInclude a source code escrow clause in the contract for this system.
• BRequire proof-of-insurance by the vendor in the RFP for this system.
• CInclude a penalty clause in the contract for this system.
• DRequire on-going maintenance as part of the SLA for this system.

• A
  64% (23)
• B
  11% (4)
• C
  6% (2)
• D
  19% (7)

Explanation

A source code escrow arrangement requires the vendor to deposit the application's source code with a neutral third party. If the vendor ceases operations, goes bankrupt, or otherwise can no longer support the product, the escrow agent releases the source code to the purchaser, allowing them to maintain or modify the system independently. This directly addresses the continuity risk. Proof-of-insurance and penalty clauses provide financial recourse but do not help the institution keep the system running. An SLA for ongoing maintenance is only enforceable while the vendor still exists-neither clause protects the institution if the vendor disappears.

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