Software Contracts: What’s Non-Negotiable

Sep 12, 2011 8:00 PM  By

Buying a new order management, warehouse management or website system takes plenty of work and time. Many companies focus too much on negotiation in the sense of trying to get a price cut or better deal, rather than really considering what their users’ needs are, who’s responsible for what and carefully reviewing the agreement.

What’s more, multichannel marketing companies often have an entrepreneurial culture, and many company owners are strong negotiators for products and services. But software/IT systems are obviously a highly specialized area and not something to be tackled without legal counsel.

So what’s generally negotiable—or non-negotiable? Here are some observations based on my consulting experience.

· Lower total costs? There may be some wiggle room here, if you have the expertise to figure out where. But generally, significant overall price cuts are not negotiable—especially for smaller companies.

· Fixed prices? Not a chance. There simply are too many variables, many of which are not within the vendor’s control.

· Guaranteed implementation on a given schedule? Unlikely. The reason: Much of the time, the installing customer fails to complete its own, internal tasks on time, holding up the installation.

· Pay for progress? Probably not. Accounting best practices in larger software companies don’t allow for recognizing revenue (booking sales) if there are strings attached to how clients are going to pay them.

· Payment for damage to your business from a faulty conversion? Most contracts limit liability to the total of what you paid.

· Paying for annual support? You’ll probably have to start paying for support before the conversion is completed.

Bottom line: In software systems scenarios, the room for negotiation is fairly limited. Multichannel merchants need to understand that the negotiation tactics they’ve used successfully with product manufacturers and other types of service providers are unlikely to work with software vendor agreements and implementations.

Pushing issues vendors will never negotiate on is a waste of time for both sides. And demanding the unworkable may result only in driving off the providers of software that’s the best option for your business.

Curt Barry (cbarry@fcbco.com) is president of F. Curtis Barry & Co., a multichannel operations and fulfillment consulting firm.