Contract liability

Contract liability is the total amount an organisation is still contractually committed to pay across its active software agreements. It is the sum of what each contract will cost between now and its next decision point.

It is a key figure for budgeting, for board reporting, and for due diligence, because it shows committed future spend that cannot simply be switched off overnight.

Twelve tools at £1,000 a month each is £144,000 of annual spend however you record it. The liability behind that number is not fixed. If all twelve are monthly rolling on thirty days notice, the only committed part is the notice you still owe, and everything past it is a decision you can take whenever you like. If all twelve are annual contracts on ninety days notice and those deadlines have already gone by, each one has committed you to another full year on top of whatever is left of the current one, so the committed figure is at least the whole £144,000.

Same invoices, same run rate, and an exposure that differs by an order of magnitude. That gap is the reason committed spend is worth reporting separately from spend: the spend number tells you what the estate costs, and only the liability number tells you how much of it you could actually stop.

The liability report works the figure out tool by tool and asks one question: if notice were served on everything exactly in line with its own terms, when would each commitment actually end? A tool whose notice window is still open ends at its current term. One whose cancellation deadline has already passed rolls on to the next term, because that term is now committed. A contract that does not auto-renew simply ends at its end date.

The outstanding commitment is then the annualised run rate across the days between now and that exit. One-off purchases, zero-cost records and anything already cancelled or expired carry nothing, and trials are excluded on the grounds that a trial is not yet a paid commitment. Totals are reported per currency and never added across currencies, so a mixed pounds and dollars estate does not collapse into one meaningless number.