Software Escrow Costs Simply Explained

Software escrow is an arrangement where an independent third party stores software materials. This third party is often called an escrow agent. The vendor delivers the agreed-upon materials. The escrow agent stores these materials and only releases them if the agreed-upon conditions are met.

Software escrow is relevant for software users, vendors, legal, risk, procurement, and IT management. The arrangement can help mitigate continuity risks if a vendor can no longer deliver or support. What costs can be part of software escrow?

The costs can consist of various components.

Setup fees are costs for setting up the arrangement. This includes registering parties, recording agreements, and determining the content of the deposit.

Annual fees are costs for storage, administration, certificates, support, and management of updates. Deposit costs are related to the materials supplied. This could be source code, but also documentation, scripts, configuration files, build instructions, or data.

Verification costs are costs for checking the materials. The check can be simple or extensive. An extensive check, for example, verifies whether the software can be built or deployed.

SaaS continuity costs can arise if the arrangement not only concerns source code but also hosting, data, cloud configuration, access, and recovery procedures. Release fees may apply if the escrow agent has to release the materials based on the agreed-upon release conditions.

Deposit, verification, and continuity

In software escrow, it is important to distinguish between three components.

Deposit means: what is stored. This can be source code, but also additional documentation or operational information.

Verification means: checking whether the deposit is complete and usable. Without verification, there is a risk that the materials are stored but later prove to be unusable.

Continuity means: what practically needs to happen in case of disruption. For SaaS, this can involve access to data, cloud setup, deployment, and operational procedures.

These three components together determine how extensive an arrangement needs to be.

Why SaaS escrow is often different With traditional software, the customer sometimes runs the software themselves. In that case, source code with build instructions may be sufficient. With SaaS, the customer usually uses an online service managed by the vendor.

Therefore, more information is often needed for SaaS. Consider:

• Describe how the cloud environment is set up.
• Record how data can be exported.
• Document what configuration is needed.
• Describe which external services are used.
• Record which recovery or fallback procedure applies.
• Check if the documentation is up to date.

This can make SaaS escrow more expensive than simple source code escrow.

Individual and collective escrow In individual escrow, one software user is the beneficiary. The arrangement is then specifically designed for that party. In collective escrow, multiple software users can participate in one arrangement. This can be practical for software used by multiple customers. However, it must be clear what rights each beneficiary has and when release is possible.

This can also affect the costs.

How to assess software escrow costs? Don't just look at the lowest price. Focus on what the arrangement includes.

• Check what materials are placed in escrow.
• Check how often the deposit is updated.
• Check if verification is part of the arrangement.
• Check which verification level is applied.
• Check if SaaS, data, or infrastructure are part of the arrangement.
• Check who the beneficiary is.
• Check which release conditions apply.
• Check if there are costs upon release.
• Record who pays which costs.
• Compare arrangements based on content and not just the annual fee.

Frequently asked questions

What does software escrow cost? That varies per arrangement. The costs depend on the software, the deposit, the update frequency, verification, SaaS continuity, and the number of beneficiaries.

Is software escrow only storage of source code? No. Software escrow can also include documentation, scripts, configuration, data, and procedures. For SaaS, more than just source code is often needed.

What does an escrow agent do? An escrow agent stores the agreed-upon materials as an independent third party. The escrow agent manages updates, performs verification if agreed upon, and handles release according to the agreed-upon conditions.

Why is verification important? Verification helps determine whether the deposit is complete and usable. This is especially important for business-critical software.

Software escrow costs are determined by what the arrangement needs to protect. A simple arrangement may be sufficient for limited risk. For business-critical software, SaaS, or complex dependencies, more attention is often needed for deposit, verification, and continuity.

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