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SYSTEM CONTRACTS: ADD SPECIFIC PERFORMANCE GUARANTEES TO AVOID PROBLEMS

One impact of software "aggregators" buying system providers is that the contracts of the survivors now offer fewer protections to distributors buying systems Ė not that they really offered many before they bulked up on rivals. Worse, with fewer vendors in the marketplace, some vendors are just about saying "take it or leave it" when it comes to contract negotiations. The process of negotiating is important because it can result in the vendor favorably "adjusting" their quote before signing Ė thereby enabling a distributor to avoid some unpleasant surprises during installation.

Here are some of the issues that must be addressed in any system contract that protects a distributor. Addressing them involves adding specific performance guarantees to the vendorís agreement.

Viability. No software company can afford to market, support and enhance several different software packages. Sooner or later, the stable will contain only a few packages. But, itís not safe to assume that the package with the most user companies will be one of the survivors; nor is it safe to assume that the most feature-rich package will survive. Even the continued release of enhancements does not guarantee that a package will remain viable.

License transfer. Long before software companies started buying up other ones, distributors started buying up other distributors. This trend is likely to continue, but some system contracts give the system provider the right to deny or restrict the transfer of licenses to an acquiring distributor. Such preclusion could result in a potential buyer walking away from the deal to buy a distributor who wants to sell.

Installation services. People who use on-line auction sites like eBay know that sellers get more money by selling at a low price but over-charging for shipping. Some software companies play a similar game by under-estimating the number of hours needed to assist a distributor in changing from the old system to the new one. Itís like handing the vendor a blank check. Similarly, some software companies excessively increase their annual support fees.

Third party software. Even though the large software companies own many software packages, there are some functions not found in any of the owned packages. These functions are handled by third-party software packages that a software company provides. Some of the third-party packages work well with some of the owned packages, and others donít work so well. Some of the third-party software packages were not designed specifically for distributors, and may not address the needs of distributors. And because third-party software was not created by a system vendor, what would happen if a distributor is sued for misuse by the author of a third-party software package?

Help with problems. When the system is down, or some critical function stops working

properly, what kind of help would be provided? If the vendorís people accidentally corrupt the data in the system, who pays for restoring it to its proper form? How quickly would the problem be resolved? How can business be conducted if the system is down or corrupted for a week? Do you want to stake your business on best efforts promises?

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Dick Friedman, the author, is a recognized expert on ERP systems for distributors. He is an unbiased 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 www.GenBusCon.com for more information or to send e-mail.