Selecting an ERP System: ERP Contract Review
By: Katie Foley
Once you narrow in on a preferred vendor, ask the vendor to send you contracts to review thoroughly before signing on the dotted line.
Although we recommend a comprehensive review of the contract your company’s legal team, here are five areas to focus on when reviewing an ERP contract:
- Licenses. Be sure that you are not getting “over-licensed”. This could mean buying too many user licenses or buying unnecessary add-on modules or loaders. Remember, it’s always easy to add licenses if you find you are always meeting the user limit, but it is often hard to “return” licenses once they are purchased. Similarly, if you find you could really use a certain loader or add-on module that you didn’t purchase, it’s easy to purchase after the original contract.
- Total Cost of Ownership. Make sure you understand the total cost of ownership. First, this includes the license fees, services fees, and maintenance fees, but what else should we consider in the total cost of ownership? If some customization work is necessary to go live, make sure you understand how many days of technical services is required for that customization work and make sure it’s built into the services fees outlined in the contract. For on-premise systems, this would also include hardware costs as well as the cost to have internal (or external) resources maintain that hardware.
- Support and Services. How does this ERP vendor define support versus services? You don’t want to call the support line thinking you have a question covered by support only to find out that your question actually requires some services days to be purchased. It is also important to understand how support and services are priced beyond the contract. How much can you expect the annual maintenance cost to go up each year? And if you decide to add more services days, will those cost the same as they did in the original contract or more?
- Software Upgrades. Understand what your rights are to new versions of the software. As long as you are a maintenance paying customer, new versions of the software should be available to you. However, if you don’t want to install the upgrade yourself, it may require paying the ERP vendor a few hours of technical services time to perform the upgrade.
- Your Data. It is extremely important that you understand the rights to your data in the contract. Of course, the contract will protect the ERP vendor’s intellectual property rights in the product itself, but what about the data that you enter into that product? Ensure that if the ERP-customer relationship was to ever end, that you would have all of the rights to your data (and the ERP company would have no rights to your data).
ERP contracts can be tedious to review, but the ERP contract review step in selecting an ERP system is very important. Remember, a good ERP-customer relationship is a long one so make sure you are satisfied with all of the terms outlined in the contract.
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