ERP implementation contract not complete

rawandnet used Ask the Experts™
Hi all,

We are about to sign a contract with a vendor to implement Cloud SaaS ERP system for our University whcih costs around 180,000 and yearly fee of $70,000.  As the contract does not contain any phrase that would protect me from the followings below.  Is there any way to push the vendor to include these conditions below, "Which I believe it is difficult to achieve"?

-  Delay damage: There is nothing mentioned that would penalize the vendor for a certain amount per day if the project was not complete on time.
-  There is nothing that would protect me from getting my money back if the implementation was not successful.  Therefore, we had to terminate to contract.  Those payment are, SaaS license that is played in advance, data migration, training and other costs.
-  All these payments are don without performing security check, Bank guarantee.

You comments are highly appriciated.
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btanExec Consultant
Distinguished Expert 2018

May still negotiate for contract variation but this may further delay your schedule of rollout. Instead, may can work out to see contract obligates the vendor to provide fee credits in the event of failures to meet the availability commitment. This delay of completion will also means not fulfilling the committed deliverables and it is to recover in other means as I doubt damages is what really your priority.

The vendor should incur any additional cost to make sure the delay is not further stretch. Should consider attempting to obtain the right to a refund of at least the entire service period’s fees.

In a state of multiple failure it should be discussed if it is breach of trust. Not sure about the legal part of it. The gist is the vendor is not committed or show no commitment to improve sitiation then it may leads to termination which is not desirable. Do check for being entitled to a prorated refund of the unused portion of the subscription license fee for the remainder of the (typically annual) term or service period and, ideally, a refund for a portion of the fees paid prior to termination.


Very useful comment, thanks,

You have mentioned "Do check for being entitled to a prorated refund of the unused portion of the subscription license fee for the remainder of the (typically annual) term or service period and, ideally, a refund for a portion of the fees paid prior to termination. "

As the license is based on number of users, not per modules or subscription fee, I assume we are entitled to pay for everything from the start, and that what mentioned in the deliverables.  After signing the agreement we have to pay the license fee which is about $60,000, that is per user account.  Can we reclaim that amount if the implementation was not successful? Meantime, data conversion (Migration) cost about $40,000, and the duration is up to 2 months.  Data Migration and training are Start Start Dependency, they both run in run in parallel.  While, data Migration will be paid for when complete, several training will be conducted and paid for during the data Migration.
Can we ask for any rights if things went wrong because of the vendor, can we reclaim back license fee, which will be useful for implementation during first year not operation, and other fee I mentioned if the implementation failed.
Exec Consultant
Distinguished Expert 2018
You should be able. There should be an standard "out" clause for fairness for such long term service delivery. Vendor would provide a window of opportunity to break the contract during a specific time window. You should be interested in the second.
  • Allow you to walk after one month of using the system but before 90 days.
  • Ability to break the contract if certain levels of service are not provided consistently.

Termination, opt-out and automatic renewal clauses: If they're not in the contract, present your own. You need to have verifiable evidence (just some common ones though it happens more after the service is accepted e.g. mean time to repair, system availability uptime and system support uptime guarantees) to demonstrate vendor showing of performance has lapses and has not given means to improve situation after much deeper discussion with them.
  • Show that you done enough to allow them to get over but eventually they failed completely to fulfill the committed deliverable.
  • Call for diligence to reduce the damages incurred on you (due to loss of services etc). Effect the termination and ask for reclaim. The amount may be negotiable and there can be grace period as the vendor has also committed in investment.
Avoid a you lose, vendor win situation. None like a lose-lose but that is last resort if vendor is not open to negotiation.
  • Vendor will require you to give a certain number of days notice (30, 60, 90) to pay for that period. However, some vendors will try to charge for the "expectancy" of the contract. E.g. the contract is for five years, and you want to get out after two years, they try to make you pay for the full five years, which you will not be using.
  • Vendor may counter propose to have the penalties as paltry discounts paid out against future purchases instead of termination
If you have a vendor with terms like this, and the vendor will not modify them, it's best to find another vendor. Having ready proof of the impact to you and incurred damages is useful as it shows worst state if this drags on, and no sign of getting better.

Be caution also on below. Consult your legal.
  • Fine print where companies typically have disputes with vendors. E.g. Watch out for "contracts of adhesion",  which is the vendor originally drafted the contract, likely drafted it to favor its own position. There is risk to a disadvantageous situation.
  • Make sure security warranties is in as you need the assurance from the vendor that your applications, and data are both private and secure. If a breach of either occurs, the vendor should be prepared to indemnify you for any losses you suffer (including lawsuits).
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Those are all important points you mentioned, will reconsider all those points.  However, one thing I still wonder who to approach it and that is if things went wrong after we signed the contract and paid the initial amount for licensing and all other costs.  What happen if the implementation went wrong and that was due to their side, system failure, Data compatibility?  How can we reclaim what we paid for, or can we do that?  if not, can we at least terminate the contract?

Furthermore, if the implementation delayed due to their end, there should be some kind of penalty?
btanExec Consultant
Distinguished Expert 2018

Probably beyond you if it deals with legal contract terms though you be the project manager. Your Finance and HR should be able to advice as they are the one that managed such procurement contract typically. But if it ascertain a criminal or fraudulent act, the local authorities need to be informed for further advice. I would have thought there is a point contact at the vendor end and arbitration authority in place. Identify at both end, but most of the time, it is for the MNCs as reputation can be at stake.

Yes penalty is rightful asking but the means to penalise varies as shared earlier. You have good ground. But probably buying assurance is another backup plan.


Thanks for your valuable information.

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