In this article we focus on a step by step guide for your legal team to craft clear, purpose-driven contract terms for a successful ERP procurement and implementation.
Successful ERP Procurement & Implementation
In our accelerated business environment, a comprehensive ERP solution is crucial for organisations aiming to streamline operations, enhance efficiency, and secure a competitive advantage.
The success of such implementations largely depends on the clarity and strength of the contract terms you create and agree between you and your systems integrator. Poorly drafted contracts with an over reliance on legal jargon or generic provisions often result in relational challenges that usually spiral into disputes, delays, and ultimately, an ERP solution that costs up to double the amount you expected and twice the timeline for implementation than you originally agreed.
Is a tailored approach to your contract terms so important?
In using the lessons learned from our experience of over 600 complex projects, this article outlines a practical approach to crafting fit-for-purpose contracts for your upcoming ERP project, fostering collaboration and enhancing the likelihood of a successful implementation. By integrating our step-by-step methodology with their existing legal expertise, your legal team can draft contracts that are more closely aligned with the project’s business case, objectives, and desired outcomes. This approach not only minimises the potential for disputes but also ensures a fit-for-purpose solution implementation, while preserving the value of professional advice from your systems integrator.
We explore each essential stage of a contract’s development, from comprehending the business case to identifying key operational use cases and outlining governance and supplier relationship management requirements. We highlight the significance of collaborative contract drafting that is specifically reverse engineered from your business case and requirements, negotiation, and an ongoing review to maintain relevancy and effectiveness.
This systematic approach enables you and your lawyers to develop contracts that facilitate ERP implementation success. A fit-for-purpose contract, supporting and cross-referencing business outcomes and use cases, is just as important as clearly articulated business objectives and requirements. By addressing potential challenges and fostering collaboration, you can confidently achieve your goals, drive positive outcomes, and realise your strategic business vision through your ERP solution.
8 steps to encourage your legal team to craft an impactful ERP contract
A comprehensive roadmap…
Step 1: Understand the business case, objectives, and outcomes. This requires your lawyers to undertake a thorough analysis of your business goals, your expectations from the ERP solution and the measurable outcomes you aim to achieve. Included should be discussions with key stakeholders, project documentation reviews and a clear definition of the project’s success criteria. By gaining a comprehensive understanding of the project’s objectives, lawyers can better draft contract terms that are aligned with these goals to better ensure the project’s success.
- Activities: Lawyers and your team conduct workshops with key stakeholders, review project documentation, and define success criteria.
- Measurements: Documented business case, a clear list of objectives, and measurable outcomes that the contract terms need to align with.
- Importance: This step provides a foundation for drafting contract terms aligned with your goals.
- Benefit: Ensures that contract terms support the achievement of the project’s objectives and outcomes.
- Impact if not undertaken: Misalignment of contract terms and project goals often results in disputes and ineffective project and contract management.
Step 2: Analyse existing and improved business processes. Requires the mapping out of your current processes and identifying areas for business improvement through the implementation of the ERP solution. This step involves examining how the new system will impact workflows, resource allocation, and overall efficiency. Gaining insights into these improvements enables lawyers to draft contract terms that specifically address your unique needs and ensure that the ERP solution delivers the desired benefits.
- Activities: Process mapping, identifying improvement areas, and understanding the impact of the ERP solution on workflows.
- Measurements: Comparison of current and improved process maps, and specific contract terms addressing process improvements.
- Importance: Lawyers understanding the current processes and how the ERP solution will improve them is crucial for drafting relevant contract terms.
- Benefit: Ensures that the contract terms are tailored to address specific process improvements and related requirements.
- Impact if not undertaken: Generic contract terms rarely adequately cover the unique aspects of a project, often leading to confusion and disputes.
Step 3: Identify key use cases. Involves collaboration between yourselves and the systems integrator to pinpoint specific operating scenarios where the ERP solution will be utilised. These use cases should cover a range of functionalities, from daily operations to more complex, strategic tasks. By understanding how the solution will be used in practice, your team and your lawyers can draft contract terms that anticipate and address potential challenges, ensuring smoother implementation and user adoption.
- Activities: Collaboration between your stakeholders to develop use cases and prioritise them based on importance.
- Measurements: A comprehensive list of use cases and mapped contract terms that address the needs and scenarios related to these use cases.
- Importance: Use cases provide insight into how the ERP solution will be used in practice, informing the operating aspects of the contract terms.
- Benefit: The resulting contract terms will better address your practical needs and those of the systems integrator, facilitating smooth implementation and practical operating governance when inevitable misunderstandings over your expectations arise.
- Impact if not undertaken: Contract terms usually do not adequately address the specific needs and day-to-day operating scenarios of the project, leading to disagreements and implementation issues.
Step 4: Outline governance and supplier relationship management requirements. This entails defining the roles, responsibilities, and communication channels for both you and the systems integrator. This step includes establishing a governance framework, outlining reporting structures and setting expectations for communication and collaboration. By specifying these requirements in the contract terms, both parties can work together more effectively, resulting in a more successful project outcome.
- Activities: Define roles, responsibilities, communication channels, and reporting structures for both parties.
- Measurements: A governance framework and supplier relationship management plan, with specific contract terms that support effective collaboration and communication.
- Importance: This step helps define the roles, responsibilities, and communication channels between you and the systems integrator.
- Benefit: Ensures the contract terms support effective governance and supplier relationship management, which is crucial for a successful project.
- Impact if not undertaken: Poorly defined governance and relationship management usually leads to miscommunications, disputes, and project delays.
Step 5: Translate objectives, outcomes, use cases, and governance requirements into clear and concise contract terms. Involves using the information gathered in previous steps to draft contract provisions that are specific, relevant, and easy to understand. This step requires a lot of upfront ‘hard thinking’ to develop careful wording, avoiding legal jargon, and ensuring that the terms reflect the unique aspects of the project. By drafting tailored contract terms, lawyers help minimise the risk of disputes and misunderstandings between you and the systems integrator.
- Activities: Draft contract provisions based on the information gathered in previous steps, ensuring clarity and specificity.
- Measurements: Contract terms that are easily understood, specific to each aspect of the project, and aligned with the objectives, outcomes, use cases, and governance requirements.
- Importance: This step ensures that the contract terms are aligned with the project’s business goals and requirements.
- Benefit: Reduces the likelihood of disputes and misunderstandings, as the contract terms are tailored to the specific project.
- Impact if not undertaken: A contract with vague or generic terms may be difficult to enforce or rely upon, leading to disputes and ineffective contract management.
Step 6: Engage in collaborative contract drafting and negotiation. Means involving both you and the systems integrator in the process of developing and refining the contract terms. This step encourages open dialogue, fosters mutual understanding, and helps identify potential issues before they escalate into disputes. By working together to develop the contract terms, both parties can build a strong foundation for their working relationship and set the stage for successful project implementation.
- Activities: Organise negotiation meetings, share draft contract terms with both parties, and solicit feedback.
- Measurements: The level of agreement and mutual understanding between both parties and contract terms that are agreed upon without major disputes.
- Importance: Involving both you and the systems integrator in the drafting process promotes mutual understanding and buy-in.
- Benefit: Encourages a spirit of collaboration and shared responsibility, reducing the likelihood of disputes and fostering a positive working relationship.
- Impact if not undertaken: A one-sided contract will create an adversarial relationship, leading to disputes and project setbacks.
Step 7: Review and revise contract terms as needed. Involves ongoing collaboration between you, the systems integrator, and the lawyers to ensure that the contract remains aligned with the project’s goals and requirements. This step may involve adjusting terms to accommodate new information, addressing concerns raised by either party, or clarifying ambiguous language. By maintaining a flexible and adaptive approach to contract development, lawyers can help ensure the contract remains relevant and effective throughout the negotiation process.
- Activities: Regularly review the contract throughout the negotiation process, make adjustments based on feedback, and address any concerns raised.
- Measurements: Ongoing alignment of contract terms with project goals and requirements, and the ability to adapt contract terms as needed.
- Importance: Ensuring that the contract remains aligned with the project’s goals and requirements throughout the negotiation process is crucial.
- Benefit: Allows for adjustments to be made as new information or requirements emerge, keeping the contract relevant and useful.
- Impact if not undertaken: A contract that becomes outdated or misaligned with the project’s goals usually leads to disputes and ineffective contract management.
Step 8: Conduct a final review of the contract terms by both parties. Involves a thorough examination of the document to confirm that all provisions are aligned with the specific project outcomes, and that they are also understood and agreed upon. This step should include discussions to clarify any remaining questions or concerns and may result in additional revisions to the contract terms. By ensuring that both parties fully understand the business outcomes and agree that the contract terms align to these business outcomes, lawyers can help minimise the likelihood of future disputes and promote a positive working relationship throughout the project’s lifecycle.
- Activities: Schedule a final review meeting, discuss any remaining questions or concerns and revise contract terms as necessary.
- Measurements: Confirmation that both parties understand and agree that the contract terms align to the business outcomes to be achieved and a signed contract that reflects the agreement of both parties.
- Importance: This step ensures that both you and the systems integrator fully understand and agree that the contract terms reflect the business outcomes to be achieved.
- Benefit: Reduces the likelihood of future disputes and misunderstandings, as both parties are on the same page from the outset.
- Impact if not undertaken: A lack of understanding or agreement on the alignment of the contract terms to the business outcomes often results in disputes, delays and a negative working relationship.
To ensure that the contract drafting is likely to encourage a fit-for-purpose project outcome during the implementation process, it is essential to establish key performance indicators (KPIs) for the project. These KPIs should be closely linked to the project’s objectives and outcomes and usually include metrics such as user adoption rate, system performance, process efficiency improvements, and cost savings. Regular progress reviews against these KPIs will help both parties gauge the effectiveness of the contract terms and make adjustments as needed to ensure a successful ERP implementation.
Do you have an existing ERP contract? A checklist for success
In cases where you already have an existing ERP contract, it is crucial to assess whether the contract terms are conducive to a successful ERP implementation. The following checklist serves as a comprehensive guide to evaluate your current contract, ensuring it aligns with the essential steps that contribute to a fit-for-purpose agreement. By reviewing and comparing your existing contract against this checklist, you can gain valuable insights into its effectiveness, identify areas that may require revision and take proactive measures to create a solid foundation for successful governance, collaboration, and ERP implementation between your organisation and the systems integrator.
Step 1: Understanding the business case, objectives, and outcomes
- Checklist: Clear alignment of contract terms with the project’s objectives and measurable outcomes.
- Importance: Ensures that the contract supports the achievement of project goals.
- Action: Review and revise contract terms to explicitly address the project’s objectives and desired outcomes.
Step 2: Analysing existing and improved business processes
- Checklist: Specifically address process improvements and related requirements.
- Importance: Assures that the contract is tailored to the unique aspects of the project.
- Action: Identify gaps in contract terms related to process improvements and revise them to better address the project’s needs.
Step 3: Identifying key use cases
- Checklist: Consider practical needs and scenarios related to the identified use cases.
- Importance: Ensures that the contract addresses the specific needs of the project and its users.
- Action: Evaluate contract terms for coverage of use cases, and modify them as needed to adequately address the project’s practical needs.
Step 4: Outlining governance and supplier relationship management requirements
- Checklist: Define roles, responsibilities, communication channels, and reporting structures for both parties.
- Importance: Facilitates effective collaboration and communication between you and the systems integrator.
- Action: Review and revise contract terms to establish clear governance and relationship management expectations.
Step 5: Translating objectives, outcomes, use cases, and governance requirements into clear and concise contract terms
- Checklist: Contract terms that are easily understood, specific to the project and free of excessive legal jargon.
- Importance: Reduces the likelihood of disputes and misunderstandings due to unclear and ‘too-wide’ contract language.
- Action: Assess the clarity of contract terms and revise them as needed to improve comprehension and specificity.
Step 6: Engaging in collaborative contract drafting and negotiation
- Checklist: Evidence of collaboration between you and the systems integrator during the contract drafting and negotiation process.
- Importance: Promotes a spirit of shared responsibility and reduces the likelihood of disputes.
- Action: Review the negotiation process and if necessary, engage in further discussions to ensure both parties understand and agree to the contract terms.
Step 7: Reviewing and revising contract terms as needed
- Checklist: Ongoing alignment with the project’s goals and requirements, with provisions for making adjustments as new information emerges.
- Importance: Ensures that the contract remains relevant and useful throughout the project’s lifecycle.
- Action: Continually monitor the project’s progress and requirements and revise contract terms as needed to maintain alignment.
Step 8: Conducting a final review of the contract terms by both parties
- Checklist: Confirmation that both parties understand and agree to the revised contract terms and that they align to the business outcomes required.
- Importance: Minimises the likelihood of future disputes and misunderstandings.
- Action: Schedule a final review meeting to discuss any remaining concerns and revise contract terms as necessary to reach an agreement that they align appropriately to the business outcomes required.
For each step, if the contract drafting appears to be vague or misaligned to the expected business outcomes, you and your lawyer should undertake a thorough review of the relevant contract terms, engage in discussions with the systems integrator and revise the terms as necessary to ensure clarity, specificity, and alignment with the project’s business goals.
Regular communication and collaboration between you and the systems integrator will be crucial in addressing potential issues and maintaining a positive working relationship throughout the ERP implementation process.
Found this article helpful? Why not have an informal but entirely confidential exploratory chat about any aspects of your own ERP project that might be on your mind?
How can we assist? Best Practice Group stands out in the field by uniquely combining deep domain complex IT project and large systems integration procurement, contract and implementation assurance expertise, with insights from our lessons learned from being an Expert Witness in numerous High Court cases. This offers unparalleled guidance that transcends even ‘specialised’ contract lawyers and ‘expert’ ERP consultants, ensuring you source the right supplier with no misunderstandings over your requirements or expectations, and have contracts in place that assure you work collaboratively with your systems integrator to achieve a fit-for-purpose solution implementation. For our free white paper on how to know what good looks like for ERP projects and implementations, click here.