Chairman of this central works council, Frans Sweers, explains that NS has had to invoke its rights in terms of the escrow agreement on two occasions to date.

The first instance, says Sweers, occurred when he was responsible for the management of the many thousands of luggage lockers and bicycle sheds that NS controls. The railway runs these facilities as part of its service to its users and was, at that stage, looking for software that would assist it to do a better job.

However, most of the software suppliers focusing on the types of solutions it wanted were very small companies and the risk was high that, during the pilot evaluation project of around 12 months, one of the suppliers might go out of business.

'When a product is on trial for a year, there is no firm order, and no payment, which obviously impacts negatively on the small developer's cash flow, and the risk certainly exists that he or she may be forced to close doors by creditors," says Sweers.

"This is exactly what happened with our luggage locker software. As you can imagine, there is not a huge demand for the product, and so NS was this development company's biggest customer. In addition, his standard product required customisation to our specific requirements.

"Consequently, the budget catered for the standard product together with an additional budget for software adaptations. But we also knew it could take two years to affect the customisation, and we did not want to risk a creditor putting the developer into receivership during that period. We therefore entered into an escrow agreement with the developer, a process handled for us by Escrow Europe."

The railway's concern was not ill-founded: two years after NS began working with the software developer, the company was sold; and the new owners, finding themselves in financial difficulty, threatened to close the company down and stop supporting the software unless the railway bailed them out. NS refused to do so, as it had already paid for the software and the customisation.

The development company was declared bankrupt and, with creditors to pay, the Receiver approached the railway, as the biggest customer, to buy it.

"The railway insisted that it was not interested in deviating from its core business and that the Receiver should look elsewhere for a buyer. However, given the only real asset of the company was its intellectual property, in order for us not to end up at the mercy of a 'raider' that might attempt to force us into agreeing to unnecessary terms, we put the escrow agreement on the table and asked the Receiver to select a responsible buyer that would uphold the agreement.

"As a result, the intellectual property was sold to a company that we trusted to be able to perform the maintenance of the application," says Sweers.

"The second time the railways business continuity was affected it concerned the software that runs the many hundred information booths. Again, the supplier went bankrupt and, waving the purchase contract, the Receiver demanded one million guilders for extended use of the software. We directed him to Escrow Europe, and never heard from him again."

Andrew Stekhoven, director of Escrow Europe, interjects: "When the Receiver contacted our head office in Amsterdam, it was explained that NS had bought a licence for five years, and that this licence was not affected by the bankruptcy of the supplier.

"In fact, in line with the escrow agreement, NS was entitled to the release of the deposited material, and finally, according to that same escrow agreement, it had acquired a licence to use that material. The Receiver had to give in."

Adds Sweers: "For our department, these systems were absolute essential. Both the lockers and the information booths were front office functions, very important to our passengers. In addition, if they no longer function, you lose the revenues as well.

"An office application like our accounting system can be replaced more quickly than a customised locker system. You have to ask yourself: 'How long it will take to replace the system and what would be the consequences for your operations in the mean time' when deciding whether to enter into an escrow agreement with the supplier.

"In fact, if your software is developed or maintained by an external third party, you had better insure yourself against dysfunction, breach of contract by that third party, or loss of business continuity," Sweers concludes.