Auditors fault Navy Microsoft agreement over warranty disclaimer

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Defense Department auditors are faulting a Navy Department enterprise license agreement for Microsoft Software for accepting license terms they say weren't in the best interest of the department.

In May 2012, the Navy signed a $700 million enterprise agreement with Microsoft in a bid to consolidate its licenses with the software giant.

However, one of auditors' two criticisms (.pdf) rests on the Navy having accepted a Microsoft disclaimer for implied warranty, refusing to guarantee the merchantability of its software, fitness for a particular purpose, or quality--a disclaimer that software vendors routinely press for since those terms are actually fraught with ambiguity when it comes to software.

Implied warranties, notes University of Washington-Seattle law school academic Robert Gomulkiewicz, developed in the commodities market during the 1800s as a way of protecting buyers from false representations made by sellers. A buyer the victim of a bad shipment has legal recourse under the doctrine of implied warranty if the goods are inferior to the market standard or if the goods obviously can't be used for the purpose which the commodity is commonly held to serve--if, say, fire retardant treated wood were instead coated with an accelerant.

The U.S. Uniform Commercial Code adopted implied warranty, and the Federal Acquisition Regulation includes a warranty of merchantability as a standard clause for the acquisition of commercial items (in 52.212-4(o), a clause that's been in the FAR at least since 1995 with minimal revision).

However, what works for commodities doesn't necessarily work for software, since unlike standards for tensile material strength, industrywide standards for software performance are nonexistent. The high potential for unexpected interactions between software within systems also makes software manufacturers loath to guarantee performance especially since they don't control user environments. It also creates revenue recognition problems. As a result, software manufacturers routinely disclaim the implied warranty--but when the Navy accepted the disclaimer, it included "an example of unacceptable language," because it supposedly waived protection against potential software defects, auditors say.

An auditor examination of 13 other Navy software contracts collectively worth $8.1 million also found that "none contained acceptable language for warranty," their report says.

The other criticism rests on Navy acceptance of Microsoft language stating that the terms for third party products embedded within Windows are "despite anything to the contrary...governed by their own license terms."

The license agreement didn't list the third party vendors nor their license terms, auditors add.

For more:
- download the report, DODIG-2013-115 (.pdf)

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