The COVID-19 crisis may final result in organizations getting a long, really hard look at their ERP contracts.
The disruption triggered by the pandemic could direct to disputes concerning ERP vendors, buyers and implementation partners or programs integrators, as assignments run into difficulties or are stopped.
Having said that, the crisis could also present an chance for buyers to renegotiate their ERP contracts with vendors and partners, and deal with troubles that may final result in venture failure or get far better terms as they navigate an unsure long term.
In a session at Electronic Stratosphere 2020, a virtual meeting sponsored by Third Phase Consulting Team, lawyer Marcus Harris of the Chicago regulation organization Taft Stettinius & Hollister LLP furnished information on how buyers can function with vendors on ERP contracts. By remaining proactive, buyers can help save cash on assignments and avoid disputes or likely litigation if the venture operates into difficulty, Harris claimed.
Harris focuses on drafting and negotiating ERP licenses and SaaS agreements, and has litigated situations stemming from ERP implementation failures. He has also served as in-home counsel for SAP and Infor as well as other ERP vendors.
Begin a conversation with your vendor
Marcus Harris: You should have a conversation with your vendor if they are not assembly contractual obligations or they are owning difficulties with providing companies. Speak to the choice-makers to figure out what is likely on and use their incapability to conduct as leverage to renegotiate onerous terms in that arrangement. Really don’t chat to your salesperson, who is incented to provide you extra companies or program items get up to the government amount. Have a heart-to-heart conversation with an government to talk about your selections and the extent that you might be remaining negatively impacted by your contractual provisions.
For illustration, you may have an enormous volume of shelfware now. Because you have furloughed half of your employees, there has to be some relief. Operate with the vendor and appear up with inventive solutions but deal with it almost from a enterprise standpoint. Then make guaranteed that what ever concessions you get are reviewed by your law firm and integrated in an modification to that contract. If you might be in the center of purchasing extra companies or program, you have a ton much more leverage than you may assume you have, so you can press really hard for some good contractual terms. This period of time of uncertainty may be an chance [to renegotiate your ERP contract], and if you can get far better terms, you should do it.
Make a assertion of function
Harris: The assertion of function [SOW] is the document that manages the venture, and you have to put in as much depth as achievable. Your target with these contractual files is to very carefully handle your romance with that program vendor, ideally for the lifecycle of a venture, but also the lifecycle of how long you use that product. The target is to be able to pull out a contract that is well drafted, that is imagined of all these contingencies and has them in area. It should be able to say [to the vendor], ‘I realize that you might be disagreeing that you’ve got bought to do this, but here’s what the contract says and here are three bullet issue goods that you might be intended to do when this comes about.’ If you experienced a moderately knowledgeable lawful counsel negotiate your contracts, several of these contingencies should be accounted for, but quite often, they are not. This is an outstanding chance to appear in and press the need to have for a adjust purchase and renegotiate for the reason that the circumstances have basically changed.
Look at agreements for SaaS support shipping
Harris: There is also risk connected with shipping of cloud companies. If you might be not presently in a venture but have a cloud arrangement with a vendor, you also have to account for disruption. It really is very likely the support degrees that you have negotiated with that vendor are not likely to be met, so you want to maintain the vendor’s toes to the hearth and take a look at the obligations the vendor has if it won’t fulfill its support degrees. Often you do not have very good selections, for the reason that vendors are adept at [turning] these obligations into ‘nice-to-haves’ somewhat than contractual obligations. To the extent that that is in your contract, you may be out of luck, and you’ve got bought to realize that the likelihood that you can expect to get a support amount credit rating in this environment has long gone down noticeably.
Use the force majeure clause
Harris: This is an unparalleled scenario, and you will find some thing in contracts known as the force majeure clause, which allows vendors and buyers to get out of contractual obligations for ‘Acts of God.’ It really is very very likely that if you will find a likely breach that was triggered by COVID, that breach could be excused by the force majeure clause. No matter if that is a true justification or not, it can be very point-intense and you have to seek the services of an lawyer to go by that provision and see if it applies to that scenario.
Come across troubles to renegotiate
Harris: In the COVID scenario, maintain in intellect that there are items to renegotiate, like unused modules. If you have half of your workforce furloughed, and that program is now just sitting down on the shelf, appear up with a inventive resolution with your vendor to exchange that for some thing you will really use. A person of the ongoing revenue sources for most program companies, specifically SAP, is maintenance. Proper now is a time — if you might be seeking to cut down your price tag, it can be definitely a good time to try out to renegotiate or make some kind of maintenance contract with SAP.
Harris: Make guaranteed that the definition of program is precise and conveniently understood. Software package is a dynamic matter it can be variety of summary, and it won’t make a ton sense to people, so owning a finite definition of what you might be really licensing becomes very significant. It really is bought to be detailed. For illustration, define if you are receiving updates and bug fixes. The much more depth that you put into this, the far better off you might be likely to be.
Get precise on rate will increase
Harris: You have to put it on the vendor to spell out accurately what variety of rate will increase they are likely to topic you to, and you have to put some parameters all over that. If you might be likely to cut down your user rely, you want to have a provision in the contract that allows you to cut down your user rely and the volume of cash that you might be shelling out on these unused people.
Know how to get out
Harris: Really don’t indication a contract that you can not get out of. You have to have some language in there that aspects how you might be likely to get out of the contract. If you do not have that, you might be out of luck. You want to depth as accurately as achievable what the contract termination fees are, the termination method, the connected pitfalls and what the vendor can do to you if you terminate early. All of that has to be spelled out with specificity.