ERP implementation failures are increasingly common. While ERP implementations fail for a variety of reasons, an ERP implementation usually does not fail because of some fundamental defect with the software. Software implementations often fail because of: (i) poor project management; (ii) the ERP vendor’s failure to follow implementation best practices; (iii) a lack of a clear understanding of the customer’s goals; (iv) lack of a clear plan to achieve the business requirements; (v) underestimating the effort required by the customer; (vi) inexperienced consultants; (vii) poor customer training in the software; (viii) unplanned customizations and modifications; and (viii) insufficient testing prior to go-live.
When negotiating ERP implementation contracts, it is critical to view the contract as a way to not only manage the implementation but as a tool to promote the success of the implementation. ERP contracts need to clearly define goals and obligations and detail the process that will be followed to achieve those goals.
An ERP implementation contract will usually have a two-part structure: (i) the base terms and conditions; and (ii) statements of work and change orders. The base terms and conditions usually set forth the underlying legal terms that will govern the ERP Vendor and customer relationship. In contrast, the statement of work is a business focused document. The statement of work should align with the ERP implementation process and should be used as a project plan that contains legally binding obligations.
The statement of work should detail with specificity the scope of the project, key deadlines, any customizations or modifications, and the anticipated cost of the ERP project. It should also account for cost overruns and scope-creep. This is usually done via a change order process that functions as an attachment to the statement work detailing the expansion of scope and the anticipated costs.
The statement of work should also identify key deliverables. A process for accepting and rejecting deliverables should be included in the statement work. Finally, the statement of work should include incentives for performance. For example, holdback, credits, and discounts for services that are late or over-budget should all be considered. Similarly, bonuses for early completion or under-budget performance are commonly included in statement of work.
Ultimately, the goal is to utilize the contract as a tool for minimizing risk, managing the implementation, and gaining control over the scope and timing of the implementation.