A recent review of a vendor’s proposed contracts for a new ERP (Enterprise Resource Program) system reminded me why so many implementations fail and lead to litigation – vendors generally underestimate the scope of the systems (on purpose to keep the price tag low, or just don’t know what they are doing) and as a result a large number of ERP implementations are failures. Actually Y2K may be the blame since as 2000 approached many companies decided to replace aging systems, many of which were silo applications systems did not share data (like HR not sharing data with accounting). So SAP, Oracle, PeopleSoft (now part of Oracle), and many others offered unified systems to allow companies to share data between all business operations and activities referred to as ERP systems.
The Ten Commandments of IT Contracts Apply
Since an ERP system includes software, hardware, implementation services, and on-going support clearly I believe that my Ten Commandments of IT Contracts apply. My Ten Commandments are based on negotiating and litigating hundreds of IT contracts:
1st Commandment – No Computer Project is ever completed on time
2nd Commandment – No Computer Project is ever complete
3rd Commandment – If you cannot see the software, it does not exist
4th Commandment – New versions of operating systems never work
5th Commandment – There are no Industry Standards
6th Commandment – Do not buy brand new hardware
7th Commandment – Do not buy brand new software
8th Commandment – Sales people have answers to every question
9th Commandment – Sales people know absolutely nothing
10th Commandment – Individuals who negotiate contracts are never around later
After posting my blog on the Ten Commandment two clients offered Commandments 11 and 12:
11th Commandment – Any IT development project large enough to have its own acronym name (BEST, BIGGEST, CYCLONE, etc) will fail
12th Commandment– Before every project, select a scapegoat and do not invite that person to meetings
Surely some readers may have others Commandments to offer, so please let me know.
What’s Different about ERP Implementations?
Often times a third party is responsible for the ERP implementation and on-going support, and the software vendor only offers a license. Depending on the software and vendors in any particular market this may be the norm. But the ideal circumstance is that the software vendor for the ERP system also does the implementation and on-going support, but prudent contract negotiations are still required.
The EPR vendor whose contracts I reviewed recently included two agreements, one a license and another for system implementation. However if the implementation does not go well, the customer should not be stuck with the software. So my advice to the customer is to sign one agreement for all software, implementation services, and on-going support. Other critical components were missing from this proposed vendor agreement – a schedule of events and a statement of work. Customers should never sign contracts to acquire ERP systems if there is no precise schedule of events and clear responsibilities of the parties in a statement of work. Detailed schedules and complete statements of work provide help because this forces the parties to think through what will happen, and payments can be based on the completion of major milestones in the schedule based on the statement of work.
With a little planning and foresight disastrous ERP implementation systems can be avoided, but it’s critical that customers user lawyers and consultants who have been through the wars to avoid major disasters.