ERP Contract: What Points should be covered?

ERP Contract

ERP Contract: What Points should be covered?

Companies usually decide to implement ERP Software to achieve a transformation in their business, to create a digital backbone, to streamline processes, improve efficiencies, and to scale & grow business. ERP Implementation is the first step of a long journey being undertaken by your Company and the ERP Vendor. Therefore it is very important to start this relationship on the right note, where both parties have a clear understanding of the objectives and expectations right from the beginning. An ERP Contract is a formal agreement that covers and clarifies these very important aspects.

What is an ERP Contract? What is the meaning of an ERP Contract?

ERP contract is a formal, written document that depicts the terms & conditions of the ERP implementation and covers important aspects such as the Scope of work in the ERP Implementation, How the ERP implementation will be carried out, What will be the milestones, deliverables, timelines, What will be the compositions of teams from both sides, their roles & responsibilities and more. We will cover all these points in the later section of this document.

Why Have an ERP Contract? What is the Importance of an ERP Contract?

ERP is not a momentary implementation. It is a long term activity and investment. Hence, it will be fair to say that smooth ERP Implementation is the beginning of the journey of using ERP to achieve your business objectives.

An ERP Contract plays a crucial role in bringing everyone involved in the Implementation on the same page and reaching a consensus on the ERP Implementation Scope, Project objectives, roles responsibilities, acceptance criteria, post-implementation support, etc.

Thus, it provides a framework for ensuring good understanding, communication, synchronization among the ERP Project Implementation teams from both sides, and running the ERP implementation smoothly.

However, since ERP is a long-term activity, involving many people, there may be chances of different interpretations, misunderstandings, errors, confusion which can effectively result in heartburn on both sides. When everything is specified in the ERP contract it reduces the chances of misinterpretations and you can cross verify what was agreed upon, and arrive at a logical solution.

You will also need Post Implementation Support from the ERP Vendor, especially when you want to introduce changes/improvements in your areas of business, if and when there are external market disruptions that require you to adapt to the situations, if and when there are changes in regulatory or statutory requirements and you have to comply with the same.

Having all these possibilities documented and service terms, charges, etc. agreed upon in the ERP Contract itself lays a strong foundation for a good relationship with the Vendor and ensures a win-win situation where the interests of both the parties are safeguarded.

What Points should be covered in an ERP Contract?

A typical ERP Contract should cover the following points in depth and define the roles, responsibilities, expectations from both sides very clearly to ensure no hiccups and misunderstanding while carrying out the ERP implementation.

1. Scope of the Project
2. Roles & Responsibilities of Client & Vendor Teams
3. Infrastructure Requirements
4. Project Implementation Methodology
5. ERP Project Timelines
6. Testing & Acceptance Criteria
7. Post Implementation Support & Activities

1. Scope of the Project

The Scope of the ERP Project should clearly define the components of the ERP Software, the Modules & Forms to be implemented, No. of client Locations or Deployment Sites, No. of User Licenses required, End User Training, and so on. Standard Operating Procedures to be implemented in functions such as Production, Inventory, Warehousing, Purchase Management, Plant & Assets Maintenance, Sales & Marketing, Accounts & so on.

2. Roles & Responsibilities of Client & Vendor Project Teams

ERP Project implementation teams from both sides must work in complete sync. Your ERP Project Team must have a Senior Management Executive, a Project Manager, and Subject Matter Experts from each function as well as a person responsible for change management. ERP Software Consultant/Vendor side must have an Account Manager, Project Manager, Technical & Functional Experts.

ERP Contract document should also explain major project activities and who is responsible for carrying out these activities. E.g. From the Client-side or Your company, responsibilities include Master Data Preparation, Availability of Users, Training of end-users, Timely arrangement of Infrastructure & third party software, Timely approvals of key decisions and documents. From the ERP vendor-side: Timely delivery of Modules, Conducting Trainings, etc.

3. Infrastructure Requirements

A certain amount of hardware, software, and network infrastructure is a must for ERP Implementation. ERP Software vendors & clients must discuss the current availability and state infrastructure facilities required in terms of Workstations, Servers, Data Protection, Operating Systems, Database, Internet Bandwidth, Emails, Software, Network LAN/WAN, Security, Firewall, Antivirus. This will ensure requirements are specified and provide enough time on hand to arrange for the same before the ERP Project starts.

4. Project Implementation Methodology

ERP Vendor and Client must discuss and agree upon a crystal clear ERP Implementation Methodology. It should be prepared after taking into consideration of all stakeholders, and all stages such as Project Kickoff & Team Forming, Requirement Gathering, Project Customization, Training & Knowledge Transfer, Reviews & Feedback, Project Acceptance criteria, and details of activities involved in each stage.

5. Timelines

You should have distinct and definite timelines for every important milestone of the ERP Project for ensuring on-time delivery. What is the estimated duration for implementation of each module, when should the resources from each team be available for discussion, when will the training be imparted. All these aspects must be documented to ensure that project stays on track and prevent any delays creeping in right from the beginning.

6. Testing & Acceptance Criteria

ERP Contract must specify details about Testing phases, User acceptance criteria, and Acceptance Team. It should specify important parameters that have to be met during cycle run, trial run, and End User Approvals criteria for tests, data preparation, and fixes or customizations, and the necessary sign-offs before Go Live.

7. Post Implementation Support & Activities

ERP Software vendors usually provide post-implementation support for ensuring the ERP success. Both parties should also discuss annual maintenance charges, and terms and conditions for the same. ERP contract should specify clauses relating to charges for annual maintenance, new user training, incorporating additional features or reports which are not specified in the scope of work, and so on.

Summary

ERP Contract is a formal document that specifies the scope of the work, the roles, responsibilities, expectations from both sides to ensure on-time within budget ERP implementation. It is a way to safeguard the welfare of both parties and ensure a long term healthy relationship between your company and the ERP Software Vendor.

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