An Enterprise Software Buying Guide, Part VIII: Contract Definition & Management

In this, our final post in this intial series on the successful acquisition of enterprise software, including e-Sourcing, e-Procurement, and other Supply Chain Software Solutions, we discuss the contract review and performance management steps.

7. Comb the Contract

The legal minds behind traditional software vendor contracts excel at including all kinds of seemingly benign terms and conditions that can turn out to be big cost gotchas if you’re not careful. My personal favorite is the mandatory maintenance clause that states if you stop paying maintenance, you lose the right to run the software. Sure you still own the perpetual license you paid big bucks for up front, but you’re not allowed to use it unless you pay maintenance, which usually has you paying the entire cost of the software every 4 to 5 years.

Other good examples of “gotchas” that you need to watch out for include:

  • The mandatory upgrade on the vendor’s schedule
    The vendor will usually try to insert a clause along the lines of “you must upgrade within 90-365 days or lose support” if you’re not careful, regardless of how long they say they will support an older version.
  • The free lunch
    There’s no free lunch. Someone always pays … and in enterprise software, that someone is YOU! Either the “free” training, support, or modules are included in the price or being offered as an incentive to lock you in for a long term that will ultimately increase the vendor’s margin and salesperson’s commission.
  • The toothless SLA
    The majority of SLAs are designed for one purpose — and one purpose only — to give you a false sense of security that causes you to overlook the fact that the wording was carefully designed by the vendor’s legal counsel to insure that the vendor gets to keep your money for the length of the contract, no matter what.
  • The Escrow
    You get the code if the vendor goes belly-up. Whoopee. Unless you have a large team of expert software developers in house that can quickly familiarize themselves with an application that contains (tens of) millions of lines of code and get you up and running again quickly, escrow is pointless. What matters is that you have guaranteed complete data access 24x7x365 and that the vendor is required to give you 30 days warning and a complete data export in a standard, product neutral, format before a material change in operations or ownership, so that you can shunt your data into another system and keep on truckin’ if, for some reason, the system stops working for you.

8. Manage Performance

You can do everything right up to the time you sign the contract and still have everything go to hell in a handbasket (and your costs go through the roof) if you don’t carefully manage vendor delivery and support throughout the contract lifetime.

It’s critical to create a project management team who will mange the implementation, monitor uptake, collect feedback, quickly identify issues, and work with the vendor to get those issues resolved in a timely manner. Otherwise, you might not get the uptake, utilization, productivity improvements, and savings you expected to get.

That’s it for this initial series on how to successfully buy enterprise software. I hope you found it useful. And remember, if you’re planning on acquiring RFX & e-Auction,
Spend Analysis,
Contract Management,
Supplier Networks & Catalogue Management,
GPOs & Marketplaces,
Market Intelligence,
Strategic Sourcing Services,
Trade Data Management,
Supply Chain Optimization, or
e-Payment platforms, a good starting list (that you can customize to your needs based on the outputs of Step 2) can be found in the X-emplification series (PDF). Have fun!