TECH TIPS BY FRIEDMAN: Don't Sign That System Contract - Until It's Changed To Include Protections
Converting to a new Enterprise Resource Planning (ERP) or Warehouse Management System (WMS) is so complex that many things can go wrong before, during and years after installation, years after the vendor has been paid. But no ven-dor con-tract protects against typical prob-lems, be-cause a vendor’s contract con-tains vague “best ef-forts” terms that are clearly in the vendor’s favor. Vendor contracts don’t protect against problems such as promised capabilities that aren’t delivered, excessive lateness and poor in-stal-la-tion support.
This is a summary of some of the kinds of protections a distributor should - and can - add to a system contract. These protections are referred to as specific performance guarantees (e.g., a promise to correct any software bugs that are causing critical problems); they replace best efforts. This article also outlines a strategy for getting desired terms and conditions.
TERMS AND CONDITIONS
- Define all words and phrases that might be subject to misinterpretation.
List in detail everything to be provided: hardware, software (including third-party packages), any modifications to be made by the vendor to the software, training and education, data conversion, installation help, post-installation software maintenance and support, etc. Define the cost of each.
- If the software will be modified by the vendor, define the process that will be followed.
- Define the procedure for delaying installation.
- Specify the conditions under which payment is made. Wherever possible, tie payments to buyer approval; e.g., approval of converted data.
- For the application software (business programs), define permitted and prohibited uses in as much detail as possible.
- In addition to the warranties that the vendor provides or passes through, define performance warranties for hardware, software and services. Define how performance is measured, and what happens when a warranted condition occurs.
- Warranties for infringement are needed because a court can bar the use of the infringing item, which could leave a distributor without a working system.
- In order for the vendor and distributor to plan ahead and work in a coordinated fashion, a schedule of tasks and completion dates should be included. Don’t forget the “go live” date.
- Define the situations that permit termination of the contract, and the consequences of termination. Also, define what would happen if either party went bankrupt before the system went live. In addition, define steps that would be taken if either party breaches the contract.
A NEGOTIATION STRATEGYTo get specific performance guarantees, a distributor will have to either amend the vendor’s contract or replace it with a new document. If the vendor reacts to the amended or new document by saying “take our contract or leave it,” find another vendor.
Once negotiations start, it is important that the person negotiating not get so emotionally involved that he/she makes compromises that do not favor the distributorship. Before compromising, consider the likelihood of a problem occurring and the impact of the problem; compromise on unlikely, low-impact problems, but not on likely, high-impact problems. Also before compromising, determine if and how the issue in question is related to other terms and conditions in the contract.