Don't sign that system contract
Until you're fully protected
by Dick Friedman
Converting to a new system is so complex that many things can go wrong before, during and years after installation and after the vendor has been paid. But no vendor contract protects against typical problems, because a vendor's contract contains vague "best efforts" terms that are clearly in the vendor's favor. Vendor contracts don't protect against problems such as promised capabilities that aren't delivered, excessive lateness and poor installation support.
This summarizes some protections a distributor should – and can – add to a system contract. These protections are referred to as specific performance guarantees (e.g. a promise to correct any software bugs that are causing critical problems); they replace best efforts.
TERMS AND CONDITIONS
Define all words and phrases that might be subject to misinterpretation. List in detail everything to be provided: hardware, software (including third-party packages), any modifications to be made by the vendor to the software, training and education, data conversion, installation help, post-installation software maintenance and support, etc. Define the cost of each. If the software will be modified by the vendor, define the process that will be followed.
DEFINE THE PROCEDURE
Specify the conditions under which payment is made. Wherever possible, tie payments to buyer approval; e.g., approval of converted data. For application software (business programs), define permitted and prohibited uses in as much detail as possible. In addition to warranties the vendor provides or passes through, define performance warranties for hardware, software and services. Define how performance is measured, and what happens when a warranted condition occurs.
Warranties for infringement are needed because a court can bar the use of the infringing item, which could leave a distributor without a working system.
In order for vendor and distributor to plan ahead and work in a coordinated fashion, include a schedule of tasks and completion dates. Don't forget the "go live" date.
Define situations that permit termination of the contract, and the consequences of termination. Define what would happen if either party went bankrupt before the system went live. Also define steps that would be taken if either party breaches the contract.
A NEGOTIATION STRATEGY
To get specific performance guarantees, a distributor will have to either amend the vendor's contract or replace it with a new document. If the vendor reacts to the amended or new document by saying "take our contract or leave it," find another vendor. The process of negotiating is also important because it can result in the vendor "adjusting" their quote before signing, enabling a distributor to avoid unpleasant surprises during installation.
Once negotiations start, don't get so emotionally involved that you make compromises not in favor of the distributorship. Before compromising, consider the likelihood of a problem occurring and the impact of the problem; compromise on unlikely, low-impact problems, not on likely, high-impact problems. Also, before compromising, determine if and how the issue in question is related to other terms and conditions in the contract.
Dick Friedman has 25+ years of experience helping distributors avoid selecting the wrong new system and overpaying. Call (847) 256-3260 for a FREE consultation, or visit www.GenBusCon.com for more information or to send e-mail.
This article originally appeared in the May/June 2010 issue of Industrial Supply magazine. Copyright 2010, Direct Business Media.
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
