Magazine article American Banker

Outsourcing Issue: Transfer Charges

Magazine article American Banker

Outsourcing Issue: Transfer Charges

Article excerpt

Outsourcing Issue: Transfer Charges

A pending lawsuit against a major software company by EDS Corp. has highlighted banks' growing concerns over software licensing fees that can significantly raise the cost of outsourcing deals.

Software vendors commonly charge fees to transfer licenses from the original holder to another, or to move software from a low-end mainframe to a high-end computer, whenever a bank merges with another bank, consolidates back offices, or hires an outside company to run its data centers.

Vendors are entitled to these fees under most license agreements. But controversy has erupted as outsourcing and consolidation have grown more common and software vendors increasingly have invoked these fees.

Licensees Unhappy

Bankers have complained that some vendors are vastly inflating their fees by misrepresenting the service that the customer originally signed on for.

Transfer fees can tack on $500,000 and more to a single outsourcing contract, observers said. "This has had a definite impact on the economics of outsourcing," said Susan McGarry, a vice president with the Yankee Group, a technology consulting firm based in Boston.

Now EDS, a subsidiary of General Motors Corp. and a major outsourcing vendor to banks, is locking horns with Computer Associates International Inc., Garden City, N.Y., the biggest U.S. vendor of mainframe software.

Both companies have a reputation as tough bargainers. Recently, Computer Associates has come under attack by customers for what they see as a particularly aggressive approach toward collecting fees. …

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