In articles 1 & 2, we have discussed the ‘Dos and Don’ts’ of preparing for an ERP implementation, as well as searching for and selecting the best solution. The culmination of these efforts leads to the next and most important stage – executing a mutually beneficial contract. The selected ERP solution could be the fabric for your company for the next 15 to 20 years, so do not rush through this process.
This agreement will define the governing principles for the project timeline, deliverables, personnel, and spend. The organization will be depending on the solution provider for a significant amount of time (commonly 3-5 years), so examining the details is key to a successful contract. Finally, plan for changes to occur throughout the duration of this project and insist that the agreement references or predicts future modifications. This article presents a few tips that can save you money and help to ensure success of your project.
- Fixed costs are critical to include in the agreement, as they can mitigate possible overruns in project spend. Purchasing additional licensing, modules, or add-on products could arise, so ensure the contract outlines the costs for future purchases.
- Personnel changes on the contracted project team are likely, but loss of productivity or project knowledge can be overcome in the terms of the agreement. Be sure you are compensated for transition time and have refusal rights for resources that may not mesh with your internal team.
- Throughout the agreement, ensure that the promises made in the vendor’s RFQ responses are noted and verified. Documenting the commitments made during the demonstrations will build confidence among the selection and implementation teams.
- Negotiate the best deal you can: Of course, this is everyone’s goal, but if you’re not looking at the agreement from the lens of the vendor, as well as your own, you might miss something important. Four essential things to remember:
- The vendor will recognize company revenue over the next decade.
- Confidently negotiate the lowest initial licensing price. There will be multiple level of user licenses, so do not overlook negotiating each price point.
- Establish daily rates for implementation consultants.
- Confirm a definition for the term ‘day’, including a minimum expectation of hours.
- Address personnel expectations and modifications in the contract: Insist that the project leader and other team members are named in the contract, as well as assigned specific expectations. Also, plan for changes among the team by defining transition expectation, as well as the right to remove resources. Occasionally, vendor resources do not work well with the in-house team, and you need the ability to remove those resources at no penalty. If someone leaves unexpectedly, you should not be responsible for the hours needed to bring new resources up to speed.
- Lock in future costs and increases: Licensing, additional software modules, and implementation resources should be negotiated at a fixed rate, realistically for 12-24 months. For subsequent months, negotiating a percentage increase ceiling can help save future costs. Cost estimations can be difficult, so build in predictions for adjusting licensed users, as your first set of assumptions may be inaccurate.
- Pay attention to travel and expenses: This may seem trivial, but the money will add up quickly and should be monitored. In the agreement, detail expense guidelines, such as specific hotels, travel and daily spend. Make sure these items are executed:
- Create an agreement with a local hotel.
- Establish a maximum expense per diem.
- Include the right to review travel plans before booking.
- If possible, utilize resources from a local office. (Ensure they do not allot international resources if you are expecting domestic travel costs).
- Don’t overlook administrative expenses: Set the expectation that the assigned project manager should also be a technical resource. To mitigate the costs of just an administrative PM, review the credentials of the proposed candidate and refuse a candidate that doesn’t have the technical background. If this person is purely administrative the costs will increase substantially.
- Don’t forget to tie deliverables to the RFQ: During the RFQ demonstrations, the solution providers will make commitments based on the needs defined – hold them to their promises. So often there is a disconnect between a sales team and the implementation team. Be sure the implementation team reviews the expectations and answers given by the sales team in the RFQ, and demand that any inconsistencies be addressed.
- Don’t omit language about future OGS: Don’t just expect future service, define the future service you expect. Though it may be years away, users will need continued support, so outline what that looks like in the initial agreement. OGS will rarely cover user support, so settling on the service costs up front will save you time and money. Negotiate a set price for software licensing and technical support. Don’t let the vendor offer ongoing support costs at 20% of the list software price. Instead, negotiate 20% of the formerly agreed upon software costs.
- Don’t discount future and unforeseen modifications: You must adapt throughout the duration of the project. Modifications are nearly unavoidable for future updates to be possible, so be nimble in your approach. Don’t assume future support will be covered after modifications are complete. Be sure the process, procedure, and documentation for how to modify the base system is outlined in the initial contract to ensure ongoing vendor support.
Creating a mutually beneficial contract for your organization and the solution provider will be the beginning of a great partnership. The agreement will govern the initiative from start to finish, and into the future. As stated above, an ERP implementation is a significant time and financial commitment, but defining expectations, outlining costs, and planning for future changes will help mitigate risks and lead to substantial savings. Finally, you will never get concessions if you don’t ask for them. Be bold – you may be surprised by the outcome.