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Chapter 6 • Software and Vendor Selection 175

all of the PCs that were showing up on staff desktops. TCO, which is essentially for ERP sys-
tems, provides a financial framework for evaluating and comparing products. It proved to be a
good evaluation tool that was adapted and used in many other areas of IT. Its accuracy in ERP
systems has been marginal, but it is a worthwhile exercise in the selection process.

CONTRACT MANAGEMENT AND LICENSE AGREEMENTS

It is very appropriate to enter into contract negotiations for the product, services, and mainte-
nance after evaluating ERP vendors based on fact and narrowing the number of possibilities down
to one or two. If there are two vendors, it is best to help understand the value of each product and
create a competition between the competing vendors. The goal of this phase is for a company and
vendor to end up with the best licensing agreement and prepare for a successful implementation.
The vendor with the best ERP fit and successful track record must be the one to “win” the bid.
In discussions with the vendor(s), the talks should center on the products included in the
purchase and maintenance terms of each product. Terms and conditions will be a significant part
of the contract and will be addressed by the buyers, contract attorneys. Professional services for
the implementation or installation can be included or bid separately. There are many professional
consulting companies with much experience in system implementation that may be used. This
has more recently been the preferred method because software vendors do not necessarily have
the best experience in implementing an ERP system.
During discussions with the vendor(s), contract life cycle management will need to be
addressed. There are certain aspects that should be present in every ERP contract that will increase
the chances of a successful purchase and implementation. The first is that all deliverables must be
clearly identified. They must be identified, and they must have delivery dates associated with
them. Next, you must ensure that you, the customer, have acceptance authority. This may seem to
be common sense, but an unsatisfactory deliverable can halt an entire implementation while
parties squabble. It is much more difficult for a vendor to cut corners if the customer has a clear
acceptance contract for each deliverable. Finally, the contract should identify those responsible on
both sides for contract management and those who have the authority to authorize changes to the
contract. With these things in place, contract management will be much easier for both sides.
There will be more of a focus on the program manager and the change management
process after the purchase of an ERP system. This is preferable to ensure the ERP implementa-
tion success and highlight the importance of a contract manager. The program manager must
appoint a contract quality manager or contract monitor. It will be this person’s responsibility to
become an expert on the contract terms and conditions. They will have primary responsibility for
making sure both sides abide by the terms and conditions of the contract. The emphasis here is
that they will monitor both sides. As important as it is for the monitor to keep the vendor honest,
it is vitally important to monitor the buyer’s program manager to keep the company implement-
ing the system within the terms of the contract. A program manager or other employee involved
in the implementation could unintentionally wander beyond the bounds of the contract, thus
violating the agreement, which may not matter when things are going smoothly but if something
goes wrong, this could be used against the buyer resulting in negotiations or court actions.
There are times when unforeseen circumstances force changes to the contract, and this can
happen even with strong contract relationships. Again, it is important that you are aware of all
terms and conditions of the contract to ensure differences do not fundamentally change each
party’s position in the contract. The intent of changes should not be to renegotiate major price
and performance guidelines; rather, changes should only be made when necessary due to unforeseen