Contracts for Accessing ERP – Top four terms to Achieve
Most ERP access contracts provided by sellers are simply awful. That is awful for buyers, but quite stellar for sellers. In summary the sellers want unilateral control of the commercial relationship as it has a direct tie to long-term revenue potential for them.
Further the ERP buyer is far more at risk in the commercial relationship than the ERP seller. The reason is simple. If there’s a commercial disagreement that appears to be unresolvable, the seller only has the potential to lose some disputed revenue and the ongoing revenue that would have been earned. For most relevant ERP sellers, this is hardly noticed. It’s very different for the buyer. In an intractable commercial dispute the buyer faces the specter of extreme risk and cost, as they have to contemplate the effort to locate, purchase, and implement a new ERP. The extreme disparity of risk in this type of commercial relationship should be contained.
The following contract objectives are key items to balance matters.
Costs that are predictable over time: There are strong incentives for ERP sellers to put in place ERP access cost terms that enable unbounded increases over time. Especially since the ERP buyer is effectively captured. Notwithstanding this, the buyer can negotiate excellent original ERP access costs and terms to stop opportunistic price increases over time. These terms typically give seller the option to raise cost based on some not-to-exceed percentage or inflation rate metric.
Bulletproof termination terms: Termination means ‘stop using the ERP’. Obviously the rules for triggering such a radical action need to be carefully designed and only be triggered for serious beaches and after a period of time to attempt to cure the alleged material breach. This is especially true in an ERP lease arrangement where the seller effectively has a switch to shut off the buyer. Notwithstanding this, the termination terms in most ERP access agreements enable the seller to terminate rather quickly for almost any alleged breach.
Contract ambiguity and instability: Today many ERP access contracts are loaded with imprecise language on key items, make references to other voluminous documents/URLs with more potential material terms that are subject to unilateral change. In the worst case some ERP subscription providers have contract provisions in which negotiated terms lapse upon the next renewal. Predicable ongoing terms should be demanded in this critical commercial relationship.
ERP transfer rights: The company using the ERP may be sold. And the future buyer should have no obstacles or costs to continue using the ERP—whether an ERP subscription or perpetual licenses. However, nearly all ERP access contracts state that access to the ERP is nontransferable. Which basically means, the buyer can transfer the usage rights for a fee. This is considered an opportunistic future upcharge. Opportunistic meaning illegitimate. Significant costs savings and useful commercial control is in the balance. For details on this topic click here