Does an ERP vendor’s fiscal year matter in the discount you get as a customer? Absolutely. Oracle’s fiscal year ended in May, and Oracle’s salespeople are notorious for pressuring customers into signing deals with significant discounts prior to year-end under the notion that the discount will disappear after the year-end. Customers need to take into consideration the vendor’s year-end and its impact on the vendor’s willingness to provide discounts. However, only focusing on year-end discounts is misguided.

While it is true some discounts will no longer be available, it is unlikely that the vendor will walk away or that all discounts will disappear. While a salesperson may want to close a deal prior to the year-end, salespeople are under constant pressure to make their numbers. In our experience, the discount being offered as an incentive to sign by year-end will change, but it is unlikely to disappear entirely.

Moreover, buying around a vendor’s year-end is not the most effective strategy for securing meaningful discounts. Customers should be methodical and creative to properly motivate sales representatives to achieve the discounts and concessions the customer seeks while focusing on managing the cost of operating the ERP system over the lifecycle of the customer’s relationship with the vendor.

While focusing on upfront discounts, price caps, future options, and the ability to swap out functionality are all important, focusing on flexibility helps reduce the likelihood of a breach of the contract, reduces the likelihood of an audit, and reduces the cost to operate the ERP software over time. Instead of only focusing on upfront discounts, customers should focus on obtaining the greatest amount of flexibility in using the software. The goal should be to minimize unexpected fees and costs. A customer also needs to think about the cost of hardware required to use the software, the training needed to use the software, and any changes required to the customer’s infrastructure to use the software.

ERP vendors do not play fair. The discounts they offer are heavily tilted to favor the ERP vendor over time. The goal is to get you to sign, and then sell you as much software as possible. As a customer, it is important to assemble a negotiation team, focus on specific aspects of the deal, and negotiate the contract so that the contract is tailored to your business needs.

Understanding how to utilize a vendor’s year-end during negotiation can be a useful tool, but focusing only on upfront discounts is short-sighted. A focus on upfront discounts will most likely cost a customer more over the lifecycle of the software product vs. a focus on flexibility.

Drafting, reviewing, and negotiating software license agreements is challenging. In this video, Taft Chicago partner Marcus Harris breaks down three issues to focus on during any review or negotiation of a software license agreement

Three Issues to Focus on When Negotiating a Software License Agreement

Taft Chicago partner Marcus Harris will be one of the featured speakers during the 2022 Digital Stratosphere Conference Live Online Edition, Feb. 8-10, 2022. Harris will present, “Digital Transformation and Contracting” on Feb. 9 at 2:00 pm EST. This event offers insight from the industry’s leading experts for organizations embarking on a digital transformation.

For more information or to register, click here.

Taft Chicago partner Marcus Harris will be a featured panelist during iTechLaw’s 2021 World Technology Law Conference. Harris will speak on “Tips & Tricks for Successfully Negotiating Your ERP Contract,” an interactive session that will address key ERP contractual provisions, common vendor tactics, and strategies for negotiating a contract that increases the likelihood of implementation success.

The virtual conference is June 8-10, 2021. Harris will present on June 8 at 2 pm EDT. Click here to view the full agenda or to register.

iTechLaw has been serving the technology law community worldwide since 1971 and is one of the most widely established and largest associations of its kind. It has a global membership base representing six continents and spanning more than 60 countries. Its members and officials reflect a broad spectrum of expertise in the technology law field.

Harris has established one of the country’s leading practices devoted to drafting and negotiating Enterprise Software related license, implementation and SaaS agreements, as well as litigating failed software implementations in courts and before arbitration panels across the country. He is one of the foremost attorneys in the country representing government entities, distributors and manufacturers in recovering damages arising out of failed Enterprise Resource Planning (ERP) software implementations.

On April 1, 2021, the Supreme Court decided Facebook, Inc. v. Duguid, which narrowed the scope of the Telephone Consumer Protection Act of 1991 (TCPA). The Court unanimously ruled that Facebook did not violate the TCPA by sending unsolicited text messages to individuals without their consent, overturning the Ninth Circuit’s decision to broadly define automatic telephone dialing systems (“autodialers”) under the federal statute. The case boiled down to everyone’s favorite subject—grammar.

To read more, visit the Taft Privacy & Data Security Insights blog post.

Taft Chicago partner Marcus Harris will be one of the featured speakers during Digital Stratosphere Live Online Edition, April 20-22, 2021. The event offers independent advice and lessons learned for organizations embarking on a digital transformation. The sessions on April 20 are open to all and the other days require registration. Click here for more information.

Harris will present the following sessions. All times are ET.

  • April 20, 12:00 pm – Lessons from Digital Transformation Failures
  • April 21, 3:00 pm – Defending Cyber Warfare in the 2020s: Data and Cybersecurity in Digital Transformation
  • April 22, 3:00 pm – Best Practices and Legal Advice for M&A Integration

Harris has established one of the country’s leading practices devoted to drafting and negotiating Enterprise Software related license, implementation and SaaS agreements, as well as litigating failed software implementations in courts and before arbitration panels across the country. Harris also has extensive experience dealing with cybersecurity issues. He advises clients on complying with the new General Data Protection Regulations (GDRP) being implemented and enforced by the European Union.

The U.S. Court of Federal Appeals (CAFC) just released its decision in another breach of software license case. Bitmanagement Software GMBH v. United States, Fed. Cir. 2020-1139 (Feb. 25, 2021). This is the second case where the court recently found for the contractor and held the Government to have overextended its use of a software license. (For a similar case at the Contract Board of Appeals, please see here).

As factual background, the Navy was using Bitmanagement’s software through a third party reseller agreement. The Navy was having trouble tracking the seat licenses and transferring them when needed (i.e. when Navy personnel transitioned). So the Navy and Bitmanagement directly discussed solutions.

Together, they decided (1) Bitmanagement would allow the Navy to use a web-based version of the software, hosted on a Navy server, and replicated for users; and (2) the Navy would run the software through an intermediate mechanism: an independently contracted and licensed software called Flex Wrap, that tracked floating licenses in order to limit the number of programs being used at any one time. Contrary to its agreement to do so, the Navy never actually implemented the Flex Wrap.

To read the full Taft law bulletin, click here.

In our prior articles on artificial intelligence (AI) in construction, we discussed machine learningimage recognition, sensors-on-sitebuilding information modeling, and smart contracts. As we noted, significant legal issues will arise with the increasing implementation of these technologies. These issues can be grouped generally into: (1) risk allocation; (2) ownership and protection of the technology, as well as the data input and outputs; and (3) the applicable standard of liability.

In this concluding article of this series, we discuss those issues briefly in our full law bulletin, available here.

As we noted in our first article on artificial intelligence in construction, artificial intelligence (AI) is a broad term that generally refers to technology that uses algorithms to process data and simulate human intelligence. In our first two articles, we discussed machine learning and then image recognition and sensors-on-site. In this article, we discuss two more AI-related topics: (1) building information modeling; and (2) smart contracts.

To read the full law bulletin authored by Cincinnati partner Joe Cleves, Jr., click here.

Despite COVID-19 shutdowns, re-openings, and partial re-closings in some parts of the state, Illinois manufacturers of all sizes are grappling with serious management decisions. Many halted the implementation of planned installations or upgrades to an Enterprise Resource Planning (ERP) software system or deferred part of their project when the pandemic began. Now, they are trying to decide whether to proceed or wait until their business returns to something approaching “normal” – whatever that might be once the virus recedes.

It is a huge decision with managerial, financial, operational, and employee relations implications that ripple throughout an organization.

For large manufacturers headquartered in Illinois or those that have operations in the state, re-starting or proceeding with a digital transformation in the current environment might also attract the attention of shareholders, Wall Street, business reporters, and even the SEC.

For smaller companies with sales between $50 million and $100 million, one or two factories and a warehouse, a complex supply chain, and perhaps a few hundred employees, the effect of a wrong decision might be the difference between thriving and barely surviving.

Digital Reopening Strategy

A recent report from McKinsey & Co. suggests that a corporate reopening strategy needs to include shifting IT and technology to a restart mode. Among the key reasons is that accelerating digital transformations will ensure that they reflect the needs of customers, employees, and the entire supply chain.

McKinsey writes, “The IT infrastructure must be relevant, secure and able to meet emerging (and changing) expectations … Executives will need to draw up a business-led technology road map to accelerate their digital transformation with urgency.”

This directly affects ERP software systems during and after COVID-19 and is why Illinois manufacturers should consider fast-tracking projects now.

Every technology project must reduce a company’s costs during and after COVID-19. Yet investments in the right ERP technology can contribute significantly to growth during the recession, which shows no signs of ending soon.

The key is ensuring that the project is relevant to an organization’s digital ecosystem in whatever comes during and after the pandemic.

The place for manufacturers to begin is by reviewing their existing contract or, for a new project that halted when COVID-19 hit, reviewing one still waiting to be signed.

If the ERP contract is negotiated and drafted – or redrafted – properly, and performance of the vendor and integrator is monitored closely, once the system comes online it should help enable a manufacturer to restart successfully and cost-effectively.

Regardless of its size, there are five key points a company needs to keep in mind as it considers fast-tracking at least portions of a new or upgraded ERP software system.

1 – Your business has likely changed. The “next normal” will require another major change as dramatic as the one when the lockdowns took effect. ERP users will continue to face a raft of unknowns that will not be clear for a while. The user’s operation may be functioning in one location but not in another. Supply chains will continue to be disrupted. Access to markets may be restricted.

2 – Recalibrate your ERP strategy. For most manufacturers with an ERP software system, what was a solid technology strategy in February may not be practical several months later. After the broad corporate strategy and direction is recalibrated, do the same with the ERP strategy, because it may need to be adjusted. This does not mean that an integration needs to be further delayed. Rather, it might be necessary to change the requirements that led to upgrading a legacy system or installing a new one. ERP vendors and integrators are much more likely to be willing to renegotiate the terms of a contract because they are even more vulnerable than many of their customers.

3 – Build a new integration roadmap. A major reason so many ERP integrations end up in a lengthy court battle is that the user did not start with a clear idea of the implementation process and how milestones would be measured and monitored. Not doing this has always been an expensive mistake, but in the time of COVID-19, it can lead to disaster for the company, with an impact on not just operations but also the bottom line. Whether or not you used a consultant at the beginning of the project, retaining one now is critical to an ERP project at this point.

4 – Include a change management initiative. Everyone has been affected by the pandemic, whether by wearing masks and following stay-at-home orders or because their pay was reduced and their job redefined. Just as senior management needs to work closely with IT to monitor the progress of an ERP project shifting back into high-gear, they also need to ensure HR is ready to help create a workable change management program. Many employees are still in shock from the effect of the pandemic on their daily lives. Without an effective change management program, employees are likely to revert to form quickly, blocking any significant shift in how they do their jobs.

5 – Management must control the change as they restart ERP projects. Despite the many unknowns over the several months, senior management can find ways to control effectively restarting ERP software system projects. Doing so requires understanding how the project will fit into Kimberling’s “next normal” and what the system needs to deliver now, however the business has had to change.

Restart ERP With Caution

A problem that has plagued many ERP projects is a slow decision-making process and seeing ERP as a technology solution rather than a management tool.

Right now, slow decision-making is the same as not deciding. A plan-ahead team is needed to identify and work through potential obstacles.

One way to sidestep problems is to work with counsel to renegotiate contract provisions that need reconfiguring to today’s reality. Vendors and integrators are in a vulnerable position, especially regarding specifics on deliverables. The responsibilities of the user, the vendor, and the integrators need to be very precise. Spell out what work will be subcontracted, and which party will be responsible for third-party performance.

For organizations just starting out on an ERP project, executives are contending with not just a transformation of the business, but also a type of contract they have not likely previously negotiated. Contracts for ERP software systems are nothing like the loan documents, sales agreements, leases, or employment offers that are typical of what businesses regularly review.

It is imperative to proceed with caution.

We have seen how large, sophisticated organizations with considerable resources can run into problems with their ERP projects, starting with the contracts they sign. Smaller manufacturers in Illinois need to be even more careful as they proceed with their efforts.

This article was originally published in the Fourth Quarter 2020 issue of The Illinois Manufacturer.