How can this be considered a subscription or would this in fact be considered a subscription. We are trying to get our end users educated along with our office so that we do this correctly.
This response is based on the information provided. I’m assuming you have procured a commercial software. In order answer your question, you first have to determine whether you agency treats commercial software purchases (more specifically licensed) as either supply (product) or services. Before we go deeper on whether or not a software license coded as supply or service in your contract writing system, let us review the basic inspection/acceptance and payment criteria for a typical supply and services acquisition.
FAR 2.101 typically defines supplies/product as all property except land (real property). All of the examples in FAR 2.101 are typically tangible items. FAR 37.101 defined services as performing an identifiable task versus furnishing an end item of supply. For inspection/acceptance provisions under product buys, we must receive the item first for quality check before we accept and render payment. Same thing goes with services (the contract must perform the task first before we accept and render payment). Commercial software license is tricky to categorize because we are dealing with an intangible item; however, we are not procuring time and effort to perform an identifiable task when dealing with software licenses. That said, categorizing commercial software as either supply or services has direct implication in regards to inspection & acceptance provisions and hence payment criteria. Furthermore, FAR 12.212 instructs contracting officers to acquire commercial software under the terms of software publisher’s commercial software end user license agreement (EULA) which may further indicate how they treat software upgrades/updates (also called software maintenance) depending on the license type (term or perpetual).
Now we go to the meat of this issue (advance payment for software upgrades/update). Suggest reviewing the DPAP Services Acquisition PSC Selection tool link (https://psctool.us/) in regards to software acquisition. Also, the GSA E-Buy website provides greater details regarding software maintenance (under IT Schedule 70). Here is what GSA says about software maintenance
"(SIN 132 32) Software maintenance as a product - includes the publishing of bug/defect fixes via patches and updates/upgrades in function and technology to maintain the operability and usability of the software product. It may also include other no charge support that is included in the purchase price of the product in the commercial marketplace. No charge support includes items such as user blogs, discussion forums, on-line help libraries and FAQs (Frequently Asked Questions), hosted chat rooms, and limited telephone, email and/or web-based general technical support for users self-diagnostics. Software Maintenance as a product is billed at the time of purchase (i.e. paid in advance).
(SIN 132 34) Software maintenance as a service - creates, designs, implements, and/or integrates customized changes to software that solve one or more problems and is not included with the price of the software. Software maintenance as a service includes person-to-person communications regardless of the medium used to communicate: telephone support, on-line technical support, customized support, and/or technical expertise which are charged commercially. Software maintenance as a service is billed in arrears (i.e. paid monthly/quarterly) in accordance with 31 U.S.C. 3324."
Depending on what you are buying in respect your software upgrades and updates, it would fall either the SIN 132 32 definition or SIN 132 34 … which would lead to your payment timing question. As always, seek an opinion from your servicing legal office. Suggest reading this GAO case relating to advance payment and computer software (http://www.gao.gov/products/403305#mt=e-report). Best wishes.