How to renegotiate your ERP contract during a pandemic

The COVID-19 crisis may possibly result in companies using a extensive, tricky glance at their ERP contracts.

The disruption brought about by the pandemic could lead to disputes amongst ERP suppliers, shoppers and implementation partners or techniques integrators, as assignments operate into difficulties or are stopped.

Nonetheless, the crisis could also present an chance for shoppers to renegotiate their ERP contracts with suppliers and partners, and resolve issues that may possibly result in task failure or get superior phrases as they navigate an uncertain potential.

In a session at Digital Stratosphere 2020, a virtual meeting sponsored by 3rd Phase Consulting Group, legal professional Marcus Harris of the Chicago law business Taft Stettinius & Hollister LLP provided suggestions on how shoppers can function with suppliers on ERP contracts. By currently being proactive, shoppers can conserve dollars on assignments and avoid disputes or opportunity litigation if the task runs into difficulties, Harris said.

Harris focuses on drafting and negotiating ERP licenses and SaaS agreements, and has litigated instances stemming from ERP implementation failures. He has also served as in-home counsel for SAP and Infor as very well as other ERP suppliers.

Start out a conversation with your vendor

Marcus Harris: You really should have a conversation with your vendor if they are not assembly contractual obligations or they are owning difficulties with delivering expert services. Communicate to the conclusion-makers to figure out what’s going on and use their incapability to carry out as leverage to renegotiate onerous phrases in that arrangement. Never speak to your salesperson, who is incented to provide you further expert services or application goods get up to the executive level. Have a heart-to-heart conversation with an executive to examine your solutions and the extent that you might be currently being negatively impacted by your contractual provisions.

Marcus HarrisMarcus Harris

For instance, you may possibly have an enormous quantity of shelfware now. Due to the fact you have furloughed 50 percent of your workforce, there has to be some reduction. Operate with the vendor and arrive up with resourceful answers but deal with it practically from a organization viewpoint. Then make confident that regardless of what concessions you get are reviewed by your attorney and integrated in an modification to that agreement. If you might be in the middle of buying further expert services or application, you have a lot far more leverage than you may possibly imagine you have, so you can thrust tricky for some superior contractual phrases. This period of time of uncertainty may possibly be an chance [to renegotiate your ERP agreement], and if you can get superior phrases, you really should do it.

Make a assertion of function

Harris: The assertion of function [SOW] is the document that manages the task, and you have to set in as substantially element as probable. Your target with these contractual documents is to thoroughly manage your connection with that application vendor, ideally for the lifecycle of a task, but also the lifecycle of how extensive you use that products. The target is to be in a position to pull out a agreement that’s very well drafted, that’s thought of all these contingencies and has them in location. It really should be in a position to say [to the vendor], ‘I comprehend that you might be disagreeing that you have acquired to do this, but here is what the agreement claims and below are 3 bullet level products that you might be intended to do when this occurs.’ If you experienced a reasonably competent authorized counsel negotiate your contracts, numerous of these contingencies really should be accounted for, but quite often, they are not. This is an great chance to arrive in and thrust the want for a modify purchase and renegotiate mainly because the conditions have fundamentally adjusted.

Study agreements for SaaS service shipping

Harris: There is also chance associated with shipping of cloud expert services. If you might be not at the moment in a task but have a cloud arrangement with a vendor, you also have to account for disruption. It really is possible the service levels that you have negotiated with that vendor are not going to be satisfied, so you want to maintain the vendor’s ft to the fireplace and take a look at the obligations the vendor has if it will not meet up with its service levels. At times you really don’t have extremely superior solutions, mainly because suppliers are adept at [turning] all those obligations into ‘nice-to-haves’ fairly than contractual obligations. To the extent that that’s in your agreement, you may possibly be out of luck, and you have acquired to understand that the prospects that you will get a service level credit rating in this setting has gone down appreciably.

Use the power majeure clause

Harris: This is an unprecedented circumstance, and there is certainly a little something in contracts termed the power majeure clause, which lets suppliers and shoppers to get out of contractual obligations for ‘Acts of God.’ It really is extremely possible that if there is certainly a opportunity breach that was brought about by COVID, that breach could be excused by the power majeure clause. Regardless of whether that’s a genuine excuse or not, it is really extremely fact-intensive and you have to retain the services of an legal professional to go through that provision and see if it applies to that circumstance.

Obtain issues to renegotiate

Harris: In the COVID circumstance, keep in thoughts that there are issues to renegotiate, like unused modules. If you have 50 percent of your workforce furloughed, and that application is now just sitting on the shelf, arrive up with a resourceful option with your vendor to trade that for a little something you will essentially use. 1 of the ongoing earnings resources for most application businesses, specifically SAP, is upkeep. Suitable now is a time — if you might be attempting to cut down your price tag, it is really seriously a superior time to try to renegotiate or build some type of upkeep agreement with SAP.

Outline application

Harris: Make confident that the definition of application is precise and effortlessly understood. Computer software is a dynamic point it is really type of abstract, and it will not make a lot perception to people today, so owning a finite definition of what you might be essentially licensing gets to be extremely significant. It really is acquired to be in depth. For instance, define if you are obtaining updates and bug fixes. The far more element that you set into this, the superior off you might be going to be.

Get unique on cost improves

Harris: You have to set it on the vendor to spell out accurately what type of cost improves they are going to topic you to, and you have to set some parameters close to that. If you might be going to cut down your person depend, you want to have a provision in the agreement that lets you to cut down your person depend and the quantity of dollars that you might be expending on all those unused consumers.

Know how to get out

Harris: Never indicator a agreement that you cannot get out of. You have to have some language in there that details how you might be going to get out of the agreement. If you really don’t have that, you might be out of luck. You want to element as accurately as probable what the agreement termination expenses are, the termination course of action, the associated pitfalls and what the vendor can do to you if you terminate early. All of that has to be spelled out with specificity.