Wednesday, 23 January 2019

ERP Software Contracts

I have made the prediction that there is to be a significant increase in the the number of organisations changing their business systems over the next few years. Combined with this and the fact most will be considering cloud options for the very first time, now is a time when frank, independent advice will be needed more then ever.

The process of selecting the right ERP system for your business can be an exhausting one. I have seen selection processes take as much as 18 months to complete. Something that should never happen and when they take this long, it is a signal something is very, very wrong. It could be:
  • You need an advisor to lead you through the process.
  • You have the wrong advisor leading you through the process. It is often the case auditing or accounting firms believe they have the expertise to do this when they in fact they don't.
  • You have an advisor that is wedded to their methodology and is creating a mountain out of a molehill. 
This process should not take any more than three to four months - tops. However when you do finally get to the point of being comfortable with the vendor of choice, there is one more critical step to take. A step that is often rushed and/or over looked completely because everyone wants to get started. That step is: Negotiating the clauses of your agreements.

The number and type of agreements vary from vendor to vendor. In essence you will be required to read, agree to and sign one or more of the following:

  • Software license/subscription agreement
  • Software service agreements
  • Master services agreement
  • Statement/s of Work
I advise my clients to get sound legal counsel on these agreements and I have one in particular I recommend. He has worked for software companies and has now starting working for himself. He understands the landscape. If you are interested you can listen to a podcast he and I recorded sometime ago before he started his own practice here.

Let me say at the outset I am not a legal expert but my comments below are a summary of the various conversations I have had with legal experts and what I have observed in my 20 plus years of doing this. (So as the adverts that want to limit their liability say, "Please do not take this as legal advice - seek a professional")

My thoughts and comments on this are:
  • You want to negotiate with your software vendor in a reasonable manner ensuring you keep a productive tone to all your negotiations. We want a win-win for both sides of the transaction and agreement on obligations required by both parties during the course of the relationship. Of course you also want protection in case the worst happens.
  • You want to build into your agreements incentives for the vendor to perform their obligations as agreed. If there is no incentive and you are on a times and materials contract, there is no incentive for the vendor to deliver quickly. In fact the opposite is true.
  • One of the biggest mistakes I see is clients negotiating hard on the vendor's consultant charge out rates and on the cost of licensing/subscription. Remember they are in business to make a profit and you want them in business in future so they are able to support you. If push comes to shove and they have to make a determination between helping you or another client, I can assure you the client with the best margin will get the attention first. Your focus should be on ensuring they are capable of delivering high quality deliverables on time rather than on specific rate discounts. You will save significantly more by ensuring you are on time than you ever will by negotiating lower rates.
  • Remember the documents your vendor will want you to sign will limit their risk and exposure. Signing their standard document is never in your best interests. You need to negotiate delivery obligations, terms, performance, conditions and consequences when these are not delivered as expected - not rates. The most aggressive document I have seen was one where the vendor agreed to all care and no responsibility and no negotiation whatsoever. Take it or leave it. Not the type of business relationship I would want to enter into and I certainly do not advise my clients to accept such an arrangement either.
  • You need to be sure you fully understand what every term means. It is often not what is said that can become an issue, it is what is unsaid or inferred. Terms do not necessarily mean what you think they mean. Check them again and again.
  • How the vendor approaches being challenged on their agreements will give you an insight to how they will perform in the implementation. There is always tension in an implementation - always. And understanding how they will behave under this stress gives insight to how they will perform for you.
Being a truly independent advisor I can provide:
  • An honest point of view
  • A track record of success
  • A kit bag of tools to draw from 
  • Knowledge of what questions to ask and an ability to put the vendor under pressure to prove their statements of capability
  • Support to executives so their risk is minimised
Please feel free to reach out to me even if you would like a sounding board for a decision or issue you are currently facing, if you or anyone you know is looking -
  • To improve the way their business operates 
  • To improve the way they leverage their current system
  • To replace their current system
Give me a call for a confidential discussion on the best way to achieve this.

Until next month ...

Sincerely,

David



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