VMware by Broadcom Contracts: Why Order of Precedence Matters
With all the noise around renewals and compliance reporting being inserted into VMware Cloud Foundation (VCF) and VMware vSphere Foundation (VVF) product use rights, many customers have overlooked the Broadcom Contract Order of Precedence of the new VMware by Broadcom contracts and how it can have a major impact on you. This blog breaks down what you need to know, especially if you are coming up to a renewal with Broadcom.
Understanding Broadcom’s New VMware Agreements
In May 2024, Broadcom unveiled its new agreements for the VMware product stack, which would apply upon a customer renewing with subscription licenses. Firstly, you have the End User Agreement, which includes several key contractual documents. The first is the Foundation Agreement containing the core terms of business that you would generally expect – ordering and delivery, indemnification, warranty, limitation of liability, etc. It effectively replaced the VMware General Terms and includes, for the purposes of licensing, one incredibly important paragraph – the order of precedence – which we’ll come to later. Also bundled into the End User Agreement are three other modules, for software, SaaS and services, respectively. The Software Module replaced VMware’s Software Exhibit, which was pretty much the end-user license agreement (EULA) for VMware’s products. Like its predecessor, the former includes the usual terms you would see in an EULA , including the license grant, support and updates, and, crucially, reporting and audit terms.
VMware Compliance Reporting and Broadcom Audit Clauses Explained
This section of the Software Module includes four paragraphs. One covers mainframe reporting for legacy CA-branded software, which we’ll set aside for this blog. The other three are critically important:
- In paragraph 3.4.3, and like the specific program documentation (SPD) for VCF and VVF, the Software Module states that customers must now provide compliance reporting every six months when running version 9 or higher of the products. We covered this previously when Broadcom introduced the requirement in May of this year, so we won’t go over it again here. You’ll probably remember that late reporting has technology implications, as Broadcom will turn off software features if reports are overdue.
- In paragraph 3.4.4, you will find the standard Broadcom audit clause, which allows you 30 days’ written notice of an impending audit and has many of the same features you would have seen in the legacy VMware audit clause. There is nothing really to worry about here in a well-managed VMware estate.
- But, in paragraph 3.4.1, you will find something that will be of slightly more concern. This gives the vendor the right to “reasonably request” any reports and records to verify your compliance with the license metric and authorised use limitation set forth in the transaction document, which you will be obliged to provide. To be clear, this is not part of an audit process, and it is not version limited like the mandatory compliance reporting requirement. Broadcom can literally just rock up and ask you for the reports. Our advice is to negotiate the removal of this license term at renewal, if you can.
VMware by Broadcom Contractual Order of Precedence: What You Need to Know
Coming back to the order of precedence now, which sits in paragraph 12.3 of the Foundation Agreement. This tells you, as is the case for most multi-layered contractual relationships, the exact order of precedence of documents when terms conflict, which is – Transaction Document, Broadcom’s global Data Processing Addendum, the applicable SPD, the relevant Module and, finally, the Foundation Agreement. A transaction document, as defined in the Foundation Agreement, includes order forms, quotes or statements of work for the specific Broadcom offering, whether it be professional services, SaaS services or software licensing.
Broadcom has inserted an entire paragraph into its standard order form, which, once again, requires customers to provide Broadcom with scheduled, verified reports that detail the installed base and license compliance of any “VCF Software,” as stipulated in their SPDs. In this context, VCF refers to the VMware Cloud Foundation division of Broadcom, which is responsible for most VMware software. Ominously, this paragraph goes much further than any others in the contractual chain and remember, it controls all other contracts where there is a conflict in terms. About halfway through this paragraph, you will see these two sentences inserted:
“Furthermore, Customer agrees that starting ten (10) business days from the date that a Compliance Report becomes overdue, Broadcom shall have the additional right to conduct a license compliance audit by giving Customer five (5) days’ prior written notice. In the event of such audit, Customer shall promptly allow access to all systems and records necessary for a full and complete audit of Customer’s use of VCF Software, whether remotely or at Customer’s facilities, and Customer shall pay for all reasonable costs and expenses incurred by Broadcom in the enforcement and carrying out of this audit right.”
Put simply, if you are two weeks late with one of your compliance reports, for any reason, Broadcom has given themselves the right to audit you at 5 days’ notice…and you must pay for it, even if you are not non-compliant. You have hopefully realised that, because of the order of precedence, this audit clause will take priority over the standard audit clause found in the Software Module. The fact that Broadcom inserted this into an order form, which isn’t publicly available for review, also highlights the company’s aggressive tactics and reliance on customers not giving their contracts due diligence.
Key Takeaways for VMware Renewals Under Broadcom
This blog post will hopefully have highlighted three very important points to you if you are going into a Broadcom renewal.
- Make sure you fully review and understand the implications of every term in every contractual document that applies to you. Broadcom usually sends the Foundation Agreement and modules, plus the relevant product SPDs if it’s your first renewal, but they probably won’t send the order form until it’s too late to negotiate. Be sure to ask for a copy of the order form early in the renewal process, even if it’s just a dummy copy for review. The more time you have to negotiate and consider your strategy, the better.
- Negotiate any terms that are unhelpful or that you do not want in the contracts or order forms. There are no guarantees but if you prepare thoroughly and have viable reasons for negotiating them out, there is always a chance, especially if you have some form of leverage you can use and the time available in which to use it.
- If you are unable to negotiate away the audit term in the order form, make sure you are all over the compliance reporting requirements, if you upgrade to VCF / VVF v9, to ensure you are never subjected to what appears to be a rather aggressive audit process.
How bedigital can help
If you want to understand your current VMware license position, need support with your renewal, or are being audited by Broadcom, bedigital’s experts can help you. Get in touch with our team to see how we can help you navigate the challenges of VMware by Broadcom licensing.
