In this bonus episode from the ERP Advisors Group podcast archives, ERP Expert, Shawn Windle, dives deep into the steps that can be taken by organizations to negotiate the best deal on their ERP selections.
Understanding Software Contracts for the Best Deal on Your ERP Selection
Introduction
ERP selection can be one of the most difficult processes a company can undergo, not to mention the contract negotiation process. To ensure you get the most from your ERP upgrade, you need to understand what levels to pull in order to get the best deal on your ERP selection. This starts with a thorough understanding of the five major components of an ERP deal: the software order form, a service’s statement of work, the general terms and conditions, a support contract, and hosting fees.
Software Order Form
The Software Order Form lays out what you are going to buy from the vendor. This can include modules, the specific software versions, or the editions you will be purchasing. Additionally, the number of users for those modules and what is included as part of those modules will be listed in this form.
The type of licensing will also be listed in the software order form, whether that be concurrent licensing, user licensing, named users, or seats. Alongside this information, they will list software and payment terms, including the contract length, specifically for Cloud and SaaS applications, as well as the renewal terms. Within the Software Order Form, you have to identify the levers you can pull to get the best discounts, renewal terms, and conditions for your contract.
Services Statement of Work
Careful consideration must go into the Services Statement of Work because it is not as simple as telling the partner or vendor to do whatever they need to do. The Services Statement of Work outlines the implementation services required to configure and implement your software. Services may include project management, analysis and requirements design, software configuration times, software testing, training, go-live support, and post-go-live support.
The most important things to look out for in the Services Statement of Work are training, data migration, and customizations. These are vital pieces of an ERP implementation and could be the difference between a successful and a failed project. The levels to pull for this portion of negotiations are primarily with the number of hours that will be included, the rate on which the services will be based, and the payment terms of the services. You may be able to negotiate discounted rates, different terms for holidays, prepayments, and whether you are paying an hourly or fixed fee. If you opt for a fixed fee, ensure you understand what assumptions could change that could cause a change order.
Terms and Conditions
“Legalese” takes center stage in the Terms and Conditions to define warranties, software support, and other key, legal protections. A major piece of this is what you can expect from the vendor, specifically when the software will be available. Typically, it will be available 99.9% of the time, but there will be language in your contract of, “Outside of maintenance windows.” You need to clarify with the vendor when those times will be and for how long so that you can prepare and are not caught off guard, especially if the times are during normal business hours for some of your entities. Many customers may overlook this important form, but it is one of the most important forms to understand.
Support Contract
Almost every software vendor offers customers some form of support, but a support contract will be a separate document or multiple documents you must include in your due diligence. Some customers do not purchase any support while others purchase “Platinum” or “24/7” support. It entirely depends on how big the software deal is or how complex it is. Ultimately, this is a major decision to be made on a case-by-case basis depending on the customer, product, and vendor. You may be able to contract with your implementation partner for support and have them submit tickets on your behalf rather than purchasing the vendor’s annual support. You may not be able to remove it in the middle of your contract if you find you don’t really utilize it.
Hosting Fees
Some deals may include hosting fees. If you purchase a product that is offered on-premises, but you want to put it at a hosting provider, you will need to pay hosting fees. This is an entirely separate hosting fee agreement in place.
Asking for Discounts
Beyond simply asking for an initial discount on the software, you need to look at the long term. Try to get locked in at that price for three, five, maybe ten years! This will save you money over an extended period. Additionally, the negotiation of renewal terms should be focused on. Right now is when you have the most power, so leverage it to get the best deal on your contract renewal.
Conclusion
The software industry has the luxury of super-high margins, which means more room for negotiation when purchasing a new ERP. It is best to understand the ins and outs of a software contract to identify the right levers to pull in order to get the best deal on your ERP selection. Want to get the best deal? Schedule a free consultation, today!