Beware of the ERP Sirens Calling

A new report on the projected growth of the ERP market through 2025 estimates that sales will increase by 7-percent annually and that the market will expand by some $41-billion over that period.

The study, done by Texas-based Research N Report and released in late January, 2019, may be a bit optimistic. But even if it is off by one-quarter it still reveals the enormous growth that will be spurred as a result of the need and use of ERP software systems over the next half-decade.

As a result, sales teams from SAP, Oracle, Microsoft, Infor and other ERP software vendors will be out in force to meet what, no doubt, will be aggressive quotas. But it also means that companies, government agencies and other organizations looking to add ERP to their management toolbox, or planning to enhance or replace an existing system, need to be careful about the terms they agree to and question representations made by sales teams.

Odysseus’ Lesson

Buyers of ERP software systems should learn from Odysseus. Like the figure out of Greek mythology who directed his sailors to cover their ears to resist the call of the Sirens, C-suite and IT executives need to resist agreeing to template ERP vendor contracts without modification or negotiation.

Standard ERP contract templates used by software vendors and integrators are onerous, one-sided and shift the risk of the business transaction to the customer. A solid, ERP contract that is fair and equitable to both sides includes at least five key components, as I’ve explained to clients and readers of this blog on an ongoing basis:

  1. A warranty that includes a specific time period and what is covered.
  2. Definitions of the software a user is buying such as the functionality and features of each module along with how upgrades and fixes will be covered by the developer or integrator.
  3. Liability limitations spelling out the extent of both party’s responsibility in clear terms.
  4. Caps on Price Hikes so that any price increases  a vendor tries to impose are known and reasonable.
  5. Terminating a contract is critical.  Customers need to have a way to get of a contract – whether for breach or for convenience.  Many SaaS contracts provide for lengthy terms and offer no means for termination prior to the expiration of the term.

Too Important

Having worked as in-house counsel for several ERP software companies early in my career as an attorney, I understand the business goals of software vendors and integrators in making the contract as one-sided as possible.

But it’s also because of my background that I know where the pitfalls and weaknesses are in the document that gets slid across a desk when a prospective buyer says “I’ll take it!” Given the expected boom in demand for ERP software systems, and seeing the disastrous results when an ERP project goes belly-up, it will be more important than ever for users to ensure that when they finally sign the deal they know what they are getting – and the software vendor knows precisely what they are expected to deliver.