Current talk in South Africa’s ITC industry suggests that, for the 2010 Soccer World Cup taking place in the country, there is a lack of resources at corporate level to assist with all the software development projects that 2010 is calling for.

One solution could be to utilise the country’s considerable skills residing in small and medium specialised software development businesses but the risk of contracting an SMME is understandably greater than appointing a large company with considerable financial and other backing.

However, Escrow Europe director, Andrew Stekhoven, says using escrow agreements is one way of mitigating the risk and getting the work done at the same time. Escrow Europe is the leading provider of active escrow services worldwide securing, verifying, updating and retaining deposits of software source code and associated documentation on behalf of users of both licensed and bespoke software products.

Stekhoven’s argument goes along these lines: Software escrow agreements can play a major role in developing a business environment in which South African SMMEs can flourish. This is because an escrow arrangement governing the source code developed and maintained by the SMME essentially nullifies tender evaluation and scoring processes dealing with company size and financial backing. With these criteria nullified, small software and systems developers run out onto the same playing field as much larger companies with their bigger reserves and healthier cash flows.

He explains how escrow can transform an SMME into a Goliath killer: "Often, smaller ICT suppliers are precluded from tendering for major projects despite their expertise and intellectual property. This is simply because the contracting organisation believes it is less risky to deal with large, established firms than smaller concerns which may have the best-fit solution but do not have the resources to guarantee ongoing support, etc.

"In theory, it is more risky to deal with smaller organisations – the intellectual property often resides with just one or two people; what happens if they leave the company or are unable to fulfil their work obligations because of illness or death? The smaller company also doesn’t have the financial resources to ride out turbulent economies and business cycles.

"However, software escrow is an effective method of minimising the risk of conducting business with smaller companies; in effect putting them on the same playing field as their larger competitors.

"A case in point is Gate C at Schiphol Airport, the Netherlands' main air-gateway and one of the world's busiest transport nodes. Each terminal at Schiphol operates as an independent profit centre, and Gate C is considerably more profitable than the others. This is partly because the terminal authorities were able to implement a powerful but low-cost access control system, developed and maintained by a team of only two ICT engineers, essentially SMME ICT vendors.

"A comparable system from one of the larger software houses would have cost significantly more to implement and maintain. Thanks to an active escrow agreement, which provides terminal managers with a guarantee of business continuity, it was possible to entrust this mission-critical application to a smaller but lower-cost supplier.

"The risk of relying on just two men for a mission critical system was effectively taken out of the equation by the active software escrow agreement."

Stekhoven asserts that SMMEs can buy themselves a huge amount of credibility and client satisfaction, as well as help grow their businesses, by proactively utilising active escrow i.e. using the same policy that Microsoft uses in-house, but for the purposes of securing IP on behalf of their clients and/or potential clients.

For instance late last year, Windows Vista build 5536 was Release Candidate 1 (RC1), the "escrow" build, a version of Vista that Microsoft shipped to testers and where Microsoft branched the Vista build tree for RTM (Release To Manufacturing).

An escrow build, according to Microsoft sources, means source code development is ceased as developers and beta testers hunt for recall class bugs in the compiled or object code i.e. the machine readable code that is installed onto a machine as the actual operating system. The escrow build version of the code is that version that is considered the release to manufacturing code. It constitutes a benchmark version of the product that, in object code format only, will be mass distributed by Microsoft through their various marketing channels.

Microsoft, as the owner of all the IP for Windows Vista, makes use of the principles of escrow, in-house, as part of their good governance practices and as part of the configuration management process whereby a complete version of the software, that has passed all configuration controls, verification, validation and user acceptance testing, is then lodged as an escrow deposit as the benchmark version of the source code that will be used for the mass manufacturing of the object code to be released to the market.

When your potential client insists on escrow arrangement for a deposit of source code (as apposed to the Microsoft case where they are using escrow processes in-house), the benefits to both the end-user and the IP owner are considerable:

* The end-user can deal with a low(er) cost supplier capable of delivering to their exact specifications without the concern of commercial risk.

* The developer can access a market previously out of their reach.

Those SMME ICT suppliers who think escrow is not for them, should consider just two questions, he says.

* How many deals have I lost because my potential clients were concerned about my sustainability or my size?
* How many more sales could I have made had I deposited my IP in an escrow agreement?

"The most important issue for your business is to sell more software product to your existing and potential clients.

"In fact, being pro-active in establishing a policy of depositing software in escow can be of great financial value to you – your clients are assured that you have taken extensive measures to safeguard their interests," he says.

"By ensuring that no matter what happens to your business (for example, a merger, acquisition etc), you have protected their future, you can legitimately go to your client and say 'I have added significant value for your business at my expense'. Now that’s a very strong sales argument."