Software Licensing for Government Contracts
Selling software to the federal government involves unique licensing considerations that commercial vendors often overlook. From pricing structures to accessibility requirements, understanding the government's software procurement framework is essential for success.
Whether you sell COTS products, build custom solutions, or provide SaaS platforms, the government has specific rules about how software is licensed, priced, and delivered. This guide covers the key considerations.
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COTS vs GOTS vs Custom Development
COTS (Commercial Off-the-Shelf)
COTS software is developed for the commercial marketplace and sold to the government under the same (or similar) terms as commercial customers. The government procures COTS under FAR Part 12 (Commercial Items), which streamlines the acquisition process and imposes fewer regulatory requirements.
Data rights: COTS software is governed by DFARS 252.227-7015, which provides the government with a commercial license — essentially the same terms as any other customer. The government cannot demand source code or unlimited rights to commercial software.
Advantage: The government prefers COTS because it leverages commercial innovation, reduces development cost, and benefits from ongoing vendor investment in the product.
GOTS (Government Off-the-Shelf)
GOTS software is developed by or for the government and is owned by the government. It can be shared between agencies without additional licensing fees. Common examples include DoD-developed mission systems, agency-specific case management tools, and government-funded R&D prototypes.
Data rights: The government typically holds unlimited rights to GOTS software, meaning it can modify, distribute, and share the software freely across agencies.
For contractors: If you develop GOTS under contract, understand that the government will own the resulting software. Protect any pre-existing IP by clearly identifying it before contract award and asserting appropriate restrictions.
Custom Development
Custom software is built to meet a specific government requirement that cannot be satisfied by existing products. Data rights depend on the funding source: government-funded development results in unlimited rights, mixed funding results in government purpose rights, and pre-existing privately funded components retain restricted rights.
Strategy: Many successful government software companies build on a commercial platform (COTS) and customize it for government needs. The commercial base retains commercial license protections while the government-funded customizations may have broader rights. This “COTS-plus” approach protects core IP.
License Types for Government
The government uses various licensing models, and the best fit depends on the agency's needs, budget cycle, and scale of deployment.
Perpetual Licenses
A one-time purchase granting the government permanent rights to use the software version purchased. Agencies prefer perpetual licenses for stable, long-term systems. Maintenance and support are typically purchased separately on an annual basis.
Subscription / SaaS
Annual or multi-year subscriptions are increasingly common for cloud-based software. The government pays per user, per seat, or per consumption unit. FedRAMP authorization is typically required for cloud-hosted solutions. Multi-year subscriptions require specific funding authority.
Enterprise License Agreements
Large-scale agreements covering an entire agency or department. ELAs provide volume discounts and simplified administration but require significant upfront negotiation. NASA SEWP, NIH CIO-SP3, and DoD ESI are vehicles that facilitate enterprise software purchases.
Usage-Based / Consumption
Pay-per-use models where agencies pay only for what they consume (API calls, storage, compute hours). Popular for cloud infrastructure and data services. Requires careful budgeting and usage monitoring to avoid unexpected costs.
GSA Software Pricing Considerations
The GSA Multiple Award Schedule (MAS) is the primary vehicle for government software procurement. Getting on GSA Schedule requires negotiating pricing with GSA that meets the “Most Favored Customer” (MFC) standard.
GSA requires that Schedule pricing be based on the discounts you offer your best commercial customers. You must disclose your commercial sales practices, discounting patterns, and pricing to your most favored customer. The government expects pricing at or below your best commercial price.
If you lower prices to your commercial MFC below your GSA Schedule price, you must also lower your GSA price. This “price reduction clause” ensures the government maintains its pricing position. Some vendors negotiate a tracking customer rather than their absolute best customer.
Schedule pricing can include volume discount tiers. Agencies ordering larger quantities automatically receive better pricing. Additionally, agencies can negotiate below Schedule prices for individual orders — Schedule pricing is a ceiling, not a floor.
Open Source in Government
The federal government is both a major consumer and contributor to open source software. The Federal Source Code Policy (M-16-21) and the OPEN Government Data Act have established a framework for government open source participation.
Code.gov serves as the government's central repository for open source code. Agencies are required to inventory their custom-developed code and release at least 20% as open source. This creates opportunities for companies that can build on or support government open source projects.
When incorporating open source into government deliverables, contractors must ensure license compatibility, disclose all open source components in a software bill of materials (SBOM), verify that open source components meet security requirements, and maintain the ability to patch and update open source dependencies throughout the contract period.
Common government-friendly open source licenses include Apache 2.0, MIT, and BSD. GPL-licensed software can be more complex in government contexts due to copyleft requirements that may conflict with data rights provisions.
Data Rights for Software (DFARS 252.227-7014)
DFARS 252.227-7014 governs the government's rights in noncommercial computer software and documentation delivered under DoD contracts. The framework mirrors the technical data rights structure but with terminology specific to software.
Software developed exclusively with government funds. The government can use, modify, reproduce, release, and disclose the software without restriction.
Software developed with mixed funding. The government can use it for government purposes and share with support contractors but cannot release it commercially. Converts to unlimited after 5 years.
Software developed exclusively at private expense. The government may use the software on government computers but cannot modify, reproduce, or release it without the contractor's permission.
For commercial software, DFARS 252.227-7015 applies instead, providing the government with a standard commercial license. Protect your commercial software by ensuring it meets the FAR Part 12 definition of a commercial item.
Section 508 Compliance for Software
Section 508 of the Rehabilitation Act requires all electronic and information technology procured or developed by the federal government to be accessible to people with disabilities. For software vendors, this means your product must conform to the Revised 508 Standards, which incorporate WCAG 2.0 Level AA.
Vendors must provide a VPAT documenting their product's conformance with accessibility standards. The VPAT should be updated for each major release. Agencies evaluate VPATs during procurement and may reject products with significant accessibility gaps.
Keyboard navigation for all functionality, screen reader compatibility, color contrast ratios of at least 4.5:1, text alternatives for images, captioning for multimedia, and resizable text without loss of functionality. Web applications must also meet WCAG 2.0 Level AA success criteria.
Non-compliant products can be rejected during procurement. Agencies that procure inaccessible technology can face complaints, lawsuits, and corrective action requirements. Vendors with strong 508 compliance gain a competitive advantage.
Related Guides
Technical Data Rights
Detailed guide to unlimited, government purpose, limited, and SBIR data rights.
Section 508 Accessibility
Deep dive into Section 508 requirements, VPAT creation, and accessibility testing.
FedRAMP Authorization
Cloud security authorization requirements for SaaS products in government.
Frequently Asked Questions
What is the difference between COTS, GOTS, and custom software?
COTS (Commercial Off-the-Shelf) is commercially available software sold to the public under standard license terms — the government buys it like any other customer. GOTS (Government Off-the-Shelf) is software developed by or for the government and owned by the government, often shared between agencies. Custom development is software built specifically for a government requirement under contract. The distinction matters because each has different data rights, pricing, and procurement rules. The government prefers COTS when possible (FAR Part 12) because it leverages commercial innovation and competition.
How does GSA Schedule pricing work for software?
GSA Schedule (now consolidated under MAS — Multiple Award Schedule) provides pre-negotiated pricing for software products and services. Vendors must offer the government their "Most Favored Customer" pricing or better. GSA negotiates discounts off commercial list prices, typically 5-20% depending on the product. Schedule pricing must be updated when commercial prices change. Agencies can further negotiate below Schedule prices for large orders. SIN 54151S covers IT Professional Services, and SIN 54151HACS covers cybersecurity services. Software products fall under various SINs within the IT category.
Can the government use open source software?
Yes. Federal policy actively encourages the use and contribution to open source software. The Federal Source Code Policy (M-16-21) requires agencies to release at least 20% of custom-developed code as open source. Code.gov serves as the government's open source repository catalog. Open source licenses (MIT, Apache 2.0, GPL) are compatible with government use, though agencies must evaluate security, support, and long-term viability. When using open source in government deliverables, contractors must comply with the open source license terms and disclose any open source components in their deliverables.
What Section 508 requirements apply to government software?
Section 508 of the Rehabilitation Act requires all electronic and information technology (EIT) procured, developed, or used by the federal government to be accessible to people with disabilities. This includes software applications, web applications, mobile apps, and electronic documents. The standard is WCAG 2.0 Level AA (soon transitioning to WCAG 2.1). Vendors must provide a Voluntary Product Accessibility Template (VPAT) documenting their product's accessibility conformance. Non-compliant products can be rejected, and agencies can face legal action for procuring inaccessible technology.
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