How To Influence The Balance of Payments In ERP Contract Negotiations

In this video, we're going to talk about how to efficiently negotiate a contract that's mutually beneficial and doesn't take you the city for a ride.

Once you've selected your E R P solution through a proper selection process, you are now at this crucial juncture of selecting the vendor and negotiating a proper contract with them. A contract that is beneficial to you and the contractor typically doesn't start off that way. It's stacked against you and in favor of the vendor. When you have a vendor that's selected, the first thing you do is ask for a draft contract, right? And when you get it, of course you're going to have your legal team involved with looking at the terms and conditions and you have experts on staff. I'm sure that can give you the s and cs and how to word certain things, but here are a few things that in our experience are very critical to look out for as you go through the negotiation process because once again, this is a once in a career process, and especially when it comes to software as a solution vendor, you're probably going to be with them for a long time, if not forever.

Costs

So here are the few things that you need to consider and make sure you have covered in a contract negotiation. The first thing, of course, is the scope of work. Is the vendor giving you what you asked for in your request of proposals? Is the contract speaking to the scope of work that you've asked for? If you've asked for an end-to-end e r P solution and their contract talks about just permitting, there's a mismatch. You don't wanna sign that contract. Make sure the, that the scope of work includes all of the services, all of the modules, everything that you ask for in that RFP process. The second thing to look out for is the budget. In that proposal, they had a pricing component. We need to make sure that that pricing component is the same one in the contract and that there are no discrepancies and that is still fits your budget.

Payment terms are critical to negotiate in a contract. They're most likely stacked against you in the first draft of a contract that you receive. You have to make sure that you're not paying for things you're not getting, that you're not paying for things that you're not getting yet, that you're not paying for, things that are not in scope and therefore should not be paid for. Balance of payments is critical and the milestone payments are critical. In an ideal contract for a city or a county, all of these items should be in sync. They should all be balanced out, and you should not be paying for something you're not getting. For example, the vendor may ask you to pay an upfront fee for setting up the cloud services or a SAS instance for you. While that may be true, you should not be forking out hundreds of thousands of dollars for something you don't get or not using upfront.

So set up fees, negotiate that really hard. The second thing is the contract would probably say that you need to pay for certain modules or the annual SAS fee upfront. Again, you have to really be careful on what you're getting for those fees. If the system's not set up, if you haven't even started implementation, what should you be paying for? When you meet certain milestones, you should be paying the vendor. For example, if you kicked off the project, the vendor can send you an invoice for the kickoff. If you met a milestone and said, your accounts payables module is all set up and ready to use and the users are happy, that's a milestone you should be paying for. You should not be paying for anything that you're not getting or anything that was not in the original RFP unless there's a change order. The balance of payment should always be in your favor.

Milestones

Make sure that the milestones are met. Make sure that the account or the contract is set up in such a way that you're only paying for milestones that are met. You're only paying for milestones that you've accepted through a proper testing process and an acceptance process, and that the balance of payments remain in your favor. You don't want to be at the end of the project having paid every invoice that came in because the vendor sent it and the system not going live on time or it not being configured to your benefit. In that case, you don't really have any leverage against the vendor to get them to change those modules or processes. I've seen some contracts have liquidated damages. What are liquidated damages? If a vendor misrepresented themselves lied to you, if they took you down this implementation path and their system doesn't do what you've asked it to do, there is no reason for you to go live on it.

There is no reason for you to pay for these broken processes or misrepresentations. In that case, some contracts build in liquidated damages, meaning if you agreed on a milestone and the milestone slips by a certain amount of time, these damages kick in, where the vendor supposed to give you back a percentage of your invoices or payments already made, and that way hold them accountable to meeting those milestones on time. Liquidated damages are a key component of keeping the vendor accountable and making sure the balance of payments and the contractors in your favor at all times. In some cases, we've seen contracts include optional modules. What that means is your RFP said we want a financials, HR, payroll land management solution, but you don't need a work order system right away. You can build in optional solutions. You can build in options to buy a certain thing with limits or options and timelines built in for how long pricing is valid. This method of contract negotiations is proven. We've saved our clients hundreds of thousands of dollars by using this methodology. If you're looking for more information or help on contract negotiations on your new E R P system, please give us a call.