Realty statement #1 - Contracts are unilateral decrees: Today’s commercial terms to access ERP are almost always completely one-sided in the seller’s favor and have provisions for unilateral changes at any time or at the end of a first ERP subscription term. So such terms start out bad for buyers and then turn to zero control as the ERP vendor can do what they want.  No rational buyer should consider this reasonable.

Realty statement #2 - The buyer takes all the risks: The ERP buyer is at extreme risk of being unable to operate if the ERP becomes unavailable, while the seller is merely at risk of losing a small portion of their revenue if the buyer does not pay or stops using ERP. Other legitimate ERP vendor risk having to do with IP protection and liability limits are easily contained in contract language. This type of difference in risk is unhealthy in any commercial relationship. And to compound this baseline risk, the typical commercial terms comprehensively remove the buyer’s legitimate rights to protect their interests.

Standard commercial terms to access ERP software have continued to degrade for buyers in the last 15 years with reasons that substantially have to do with large corporations’ attitudes changing. Further, the nature of Cloud ERP accelerated the degradation of the commercial relationship for buyers because sellers highly value:

1. Little to no barriers to raising the Cloud ERP subscription amounts for cloud ERP customers as compared to ongoing maintenance/support fees tied to perpetual ERP licenses from which the ERP buyer could opt out.
2. The fact they now fully control the on/off switch for the Cloud ERP—which at a minimum is a veiled threat to not challenge the ERP seller about anything, at any time. Typical Cloud ERP contract language has multiple compounding elements that formalize their ability to act on this threat.

Described here is the default situation that far too many buyers accept, therefore the basis for this article’s title, ‘Near Total Loss of Commercial Control’. The only option with which the buyer has direct control is to change ERP. However, the sellers know this is an extreme action that takes a year or more to pull off. So with the default terms the ERP seller basically has complete authoritarian control in the ‘relationship’ at the time a matter is being processed.

Oh Hell No . . .
. . . Is the reaction of most ERP buyers when they are educated on this situation. So what should a buyer do to not be subject to this intolerable unilateral commercial situation that has evolved in this particular software industry? All of the following actions are critical to address if the buyer is to have any enduring useful commercial control with an ERP vendor.

1. Learn about Cloud ERP access options: There are remote ERP access options that give buyers more inherent commercial control and have other benefits. More information here
2. ERP Access Cost Control: ERP contract terms must support various cost control discipline including subscription cost escalation for initial and future ERP access purchases. More information here
3. Dispute Resolution and Termination Rules: A balanced process to resolve commercial concerns or disagreements must exist for both parties—instead of the typical terms in which the ERP company can unilaterally merely claim (not prove) a breach and threaten the buyer’s ERP access rights.
4. Commercial Terms Stability: Commercial terms to access critical enterprise business applications should obviously be precise and unambiguous. Further, most terms should endure for the entire commercial relationship and not be subject to unilateral changes by the seller.
5. ERP Transfer Rights: The company using the ERP may be sold at some point in the future, and that future buyer should have no obstacles or costs to continue using the ERP.
6. ERP Failover Process: All Cloud ERP vendors will someday no longer be in business—no matter who they are. And most software business closures are not announced well in advance. So what happens that morning the Cloud ERP does not come on line for the buying company? To control this risk, arrange for an ERP failover option or expose the fact that the ERP seller has none. More information here

Unfortunately, many buyers have blindly accepted this type of commercial relationship which is one key reason this situation with poor commercial terms has become worse in recent years. However, new buyers are becoming increasingly aware of the commercial terms risk of the typical Cloud ERP offering and are pushing back. Please join this important counterforce as it helps all buyers of Cloud ERP access.

ERP - Arguably the hardest commercial relationship to escape . . . So get it right at the start.

Information in these articles is based on the experience of over 1000 ERP projects conducted since
1996 in which the ERP buyer's interests and well-being was the sole focus.