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MAKING "SYSTEMS"-USE and OPERATIONS MORE-PROFITABLE
For Distributors, WHOLESALERS, Manufacturers
DON'T SIGN THAT SYSTEM CONTRACT -- UNTIL ITS CHANGED TO INCLUDE PROTECTIONS
Converting to a new system is so complex that many things can go wrong before, during, and years after installation; years after the vendor has been paid. But no vendor contract protects against typical problems, because a vendorís contract contains vague "best efforts" terms that are clearly in the vendorís favor. Vendor contracts don't protect against problems such as promised capabilities that aren't delivered, excessive lateness and poor installation support.
This is a summary of some of the kinds of protections a distributor should -- and can -- add to a system contract. These protections are referred to as specific performance guarantees (e.g. a promise to correct any software bugs that are causing critical problems); they replace best efforts. This article also outlines a strategy for getting desired terms and conditions.
TERMS AND CONDITIONS
Define all words and phrases that might be subject to misinterpretation.
List in detail everything to be provided: hardware, software (including third party packages), any modifications to be made by the vendor to the software, training and education, data conversion, installation help, post-installation software maintenance and support, etc. And define the cost of each.
If the software will be modified by the vendor, define the process that will be followed.
Define the procedure for delaying installation.
Specify the conditions under which payment is made. Wherever possible, tie payments to buyer approval; e.g., approval of converted data.
For the application software (business programs), define permitted and prohibited uses in as much detail as possible.
In addition to the warranties that the vendor provides or passes through, define performance warranties for hardware, software and services. Define how performance is measured, and what happens when a warranted condition occurs.
Warranties for infringement are needed because a court can bar the use of the infringing item, which could leave a distributor without a working system.
In order for vendor and distributor to plan ahead and work in a coordinated fashion, a schedule of tasks and completion dates should be included. Donít forget the "go live" date.
Define the situations that permit termination of the contract, and the consequences of termination. And define what would happen if either party went bankrupt before the system went live. Also define steps that would be taken if either party breaches the contract.
A NEGOTIATION STRATEGY
To get specific performance guarantees, a distributor will have to either amend the vendor's contract or replace it with a new document. If the vendor reacts to the amended or new document by saying "take our contract or leave it", find another vendor. The process of negotiating is also important because it can result in the vendor "adjusting" their quote before signing Ė thereby enabling a distributor to avoid some unpleasant surprises during installation.
Once negotiations start, it is important that the person negotiating not get so emotionally involved that he/she makes compromises not in the favor of the distributorship. Before compromising, consider the likelihood of a problem occurring and the impact of the problem; compromise on unlikely, low-impact problems, but not on likely, high-impact problems. Also before compromising, determine if and how the issue in question is related to other terms and conditions in the contract.
Dick Friedman, the author, is a recognized expert on ERP systems for distributors. He is anunbiased Certified Management Consultant and does NOT SELL systems. Dick applies more than 30 years of experience to objectively help distributors select the right ERP and WMS systems, while avoiding the pitfalls, problems and overpaying; and helps obtain contracts with specific performance guarantees that protect clients from one-sided vendor contracts. Call 847 256-1410 for a FREE consultation, or visit for more information or to send e-mail.