Enterprise Software Agreements (ESI) for Software Companies: How DoW Buys Commercial Software

If you sell commercial software to the Department of War, there is a rule that sits between the buyer’s requirement and your quote: the Enterprise Software Initiative (ESI). It tells DoW buyers to check the department’s own software inventory and its enterprise software agreements before they buy commercial software or maintenance any other way.

Most software companies meet ESI late, when a program office that wanted their product says it has to look at “the ESI agreement” first. This guide covers the rules in DFARS Subpart 208.74, the buying steps in the DFARS Procedures, Guidance and Information (PGI) at 208.7403, and what they mean for how you sell to DoW. It is written for founders and capture leads planning defense software deals.

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What ESI is

DFARS 208.7401 gives three definitions:

• An enterprise software agreement (ESA) is an agreement or a contract used to acquire designated commercial software or related commercial software services such as software maintenance.
• The Enterprise Software Initiative is an initiative led by the DoW Chief Information Officer to develop processes for department-wide software asset management.
• Software maintenance means services normally provided by a software company as standard services at established catalog or market prices, for example the right to receive and use upgraded versions, updates and revisions.

The policy is in DFARS 208.7402(a): departments and agencies shall fulfill requirements for commercial software and commercial software services, such as software maintenance, in accordance with ESI. ESI promotes the use of ESAs with contractors that let the department obtain favorable terms and pricing for commercial software and services.

The same paragraph sets a limit that matters for vendors: ESI does not dictate the products or services to be acquired. It does not pick your competitor over you. It governs how a requirement for commercial software gets filled once the buyer knows what it needs.

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Which buys it covers

DFARS 208.7400 applies the subpart to commercial software and software maintenance, including software and maintenance acquired:

1. As part of a system or system upgrade, where practicable.
2. Under a service contract.
3. Under a contract or agreement administered by another agency, for example under an interagency agreement.
4. Under a Federal Supply Schedule contract or blanket purchase agreement established in accordance with FAR 8.405.
5. By a contractor authorized to order from a Government supply source under FAR 51.101.

That list is broad on purpose. Software bundled into a system integrator’s bid, software bought through a services contract, and software bought off a GSA Schedule are all in scope. Our guides to selling SaaS on the GSA Schedule and blanket purchase agreements cover those routes, and our guide to federal resellers covers selling through partners who may hold the agreement for you.

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The steps a DoW buyer follows

DFARS 208.7403 points buyers to PGI 208.7403, which sets out the order of operations once requirements are determined:

1. Check DoW inventory first. The requiring official reviews the ESI website to see if the software or services are already available from department inventory, for example Golden Disks and department-wide software maintenance agreements. If they are, the requirement is filled from inventory.
2. If it is not in inventory and not on an ESA, the contracting officer or requiring official may fill the requirement by other means. Existing ESAs are listed on the ESI website.
3. If it is on an ESA, the buyer reviews the ESA’s terms, conditions and prices under the otherwise applicable source selection rules.
4. If the ESA is the best value, the buyer fills the requirement through the ESA.
5. If the ESA is not the best value, the software product manager (SPM) who runs the agreement gets a chance to provide the same or better value under the ESA before the buyer may use another method.

Step 5 has its own timeline. The buyer notifies the SPM of specific concerns about the ESA’s terms or prices through the ESI webpage. Within 3 working days the SPM must update the ESA, give an estimated date for the update, or say no change will be made. If the SPM says no change, does not respond within 3 working days, or does not plan to adjust the ESA within 90 days, the buyer may fill the requirement by other means. A management official designated by the department or agency may also waive the ESA requirement once the notice and response steps are complete, and the rationale for the alternate source goes in the waiver request and to the SPM.

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What this means for a software company

If your product is on an ESA, the agreement is the default route for DoW buyers. Your job is to keep its terms and prices competitive, because a buyer who finds a better value elsewhere can raise it with the SPM, and the SPM has days, not months, to respond. Know who your SPM is, what the agreement’s prices are, and how quickly you can approve a change within its scope.

If your product is not on an ESA, ESI is not a closed door. Under PGI 208.7403(2), a requirement for software that is not in inventory and not on an ESA may be filled by other means. Make it easy for the buyer to document that: be precise about what your product does, so the requirement is written around capabilities a listed agreement does not cover.

If a competitor is on an ESA and you are not, expect the buyer to compare you against that agreement. The comparison is on terms, conditions and price under the normal source selection rules, so a strong value case still counts. Our guide to price reasonableness covers how contracting officers judge price.

If you sell through a system integrator or a services contract, your software is still in scope under DFARS 208.7400. Ask your prime early whether the software line in their bid will be checked against inventory or an ESA.

Your license terms travel with you. ESAs exist to get favorable terms as well as prices. Our guide to software license terms in federal contracts covers the commercial license clauses buyers negotiate, and our guide to commercial products under FAR Part 12 covers why commercial treatment matters.

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Supply chain risk sits beside ESI

DFARS 208.7402(b) adds a second requirement in the same section: when DoW acquires information technology, whether as a service or as a supply, that is a covered system, part of one, or in support of one as defined in DFARS 239.7301, the buyer includes an evaluation factor regarding supply chain risk under DFARS Subpart 239.73. For software sold into national security systems, expect supply chain questions in the evaluation, not only in the contract clauses. Our guide to Section 889 covers a related set of supply chain prohibitions.

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An ESI checklist

• Search the ESI agreement list for your product and your competitors’ before a DoW deal gets serious.
• Learn the buyer’s order of steps. Inventory first, then ESAs, then other methods.
• If you are on an ESA, keep it current. Prices and terms that drift out of line invite a best-value challenge with a short clock.
• If you are not on an ESA, sharpen your capability case so the requirement clearly needs what a listed agreement does not offer.
• Ask your prime how the software in their bid will be sourced.
• Prepare for supply chain risk evaluation if your software touches a covered system.
• Read the current rule text. The DFARS and its PGI change, and the FAR is being rewritten under the Revolutionary FAR Overhaul, so section numbers and wording may move. Confirm the rules in your solicitation and get advice from counsel on contract questions.

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The short version

• ESI is the default route for DoW commercial software. DFARS 208.7402 tells buyers to fill software and maintenance requirements in accordance with it.
• Inventory, then agreements, then other methods. PGI 208.7403 sets the order.
• ESI does not pick products. It governs how a known requirement is filled.
• Best value still decides. An ESA wins only if its terms and price are the best value, and the SPM gets a short window to match.
• The scope is wide. Software bought in a system, a services contract, a Schedule order or a BPA is covered.

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Where this fits

Enterprise agreements reward vendors whose products, terms and federal standing are easy for a buyer to verify. Before you pursue a DoW deal, it helps to know how your company looks across the categories federal buyers review, from compliance posture to registration and federal track record. Score your company’s federal readiness to see where you stand.

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Related reading

• Category Management and GSA OneGov for Software Companies
• GSA Schedule for SaaS Companies: Is It Worth It, How Long, and What Does It Cost?
• Blanket Purchase Agreements for Software Companies: How GSA Schedule BPAs Work
• Software License Terms in Federal Contracts: What Agencies Can’t Sign
• Federal Resellers for SaaS Companies: How the Channel Works and How to Choose One