Replacing Heritage Applications with SaaS, Part Five

In the first three (One, Two, Three) Parts of this series, we considered the concerns and expectations of the user community, and in Part Four, we considered the concerns of the IT operations departments.  In this final Part, we’ll take a look at the concerns and contributions of the purchasing and legal experts who will be called on to provide their services in selecting and contracting with a vendor of software as a service (SaaS).

Your organization almost certainly has attorneys, either on staff or on retainer, who will have to review and approve any contract before someone with signature authority will sign it.  And if your organization has a purchasing or strategic sourcing department that provides staff members to assist in selecting, negotiating, and contracting with vendors, they probably have some specific procedures that the project manager will need to follow.  This is especially important if your organization has a requirement that a formal solicitation, such as a request for proposal (RFP), will be used to select a vendor.  Because of their special skills, these folks will be critical to the success of almost any SaaS implementation project.

If you’re a practicing IT project manager, you probably have some experience with vendors.  You may have participated in vendor selection processes and even assisted with contract negotiations.  You might be comfortable with your understanding of the issues when purchasing hardware, software, and professional services.  But contracting for software as a service has some unusual characteristics:

  • Periodic payments are made to the vendor throughout the contract period, frequently on the basis of usage
  • Since the vendor is providing a service, service levels are typically specified in the contract, in terms of availability, scheduled maintenance down times, response times in the event of an unplanned outage, and so on
  • The vendor has custody of the data, and is responsible for limiting access to only authorized users, guarding against unauthorized changes, backups, archiving, and purging of records
  • Vendors may or may not be willing to make modifications to their software; they almost certainly will not be willing to allow their customers to modify their software
  • Many SaaS vendors are small, start-up businesses, and don’t have a lot of depth in either talent or finances.

Be sure your purchasing and legal contacts understand these characteristics, so they can plan their work accordingly.  For example, the purchasing expert may provide specific provisions to be inserted into your RFP that will help to qualify vendors based on their financial statements, and the attorney might suggest a surety bond or specific performance insurance, in order to protect against the vendor suddenly going out of business.  The RFP will list the specific requirements and the criteria to be used to select an offering.  A good RFP will be able to help a vendor decide that they aren’t going to make the final cut, and avoid wasting either their time or yours with a response.

Before sending out your RFP, you will almost certainly need to have each of your prospective vendors sign a mutual non-disclosure agreement, and possibly a data security agreement.  These agreements protect both sides in the negotiations, and your legal and purchasing team members will ensure your organization is protected, should a vendor propose alternate wording.  They will also ensure that the RFP and supporting documents are clear in the areas that will matter most during contract negotiations.  It is better to know where misunderstanding may occur before initiating communications.  If you ask only for “training,” responding vendors may offer anything from computer-based self-training to “train the trainer” to individual training in their classroom.  The purchasing expert can help you and your team “think like a vendor,” so your RFP will meet their needs as well as yours.

Once the vendors have provided their responses, your team will use the selection criteria specified in the RFP to select those that will be considered.  Every selection is a careful balance of the quality and fit of the vendors’ offerings, from features to use of learning and use, to service level, to cost.  Your purchasing expert will likely be a source of advice, as well as some formal tools that can be used in the selection process.  For example, you may invite two or more vendors to submit their “best and final” offer for consideration, in order to make a final choice.

Once that choice is made, the purchasing expert and attorney take the lead.  They will negotiate the terms and conditions of the contract with their vendor’s counterparts.  They may also help to “tighten up” the language in the service level agreement, or SLA.  It may also be important to ensure you can gracefully extricate the organization from the vendor’s clutches at the end of the contract period, or in the event of a breach; think of it as the business equivalent of a “pre-nuptial agreement.”  Your organization may have specific language, sometimes called “boilerplate,” that has to be a part of every contract.  The attorney will negotiate any exceptions or clarifications needed by the vendor, and determine if there are any show-stoppers.

When negotiators from both sides have finalized the contract, the approval authorities will review it (or an executive summary provided by the attorney) and provide their signatures.  The completed contracts (one for each party) will be filed in whatever way the respective organizations have established, the departments involved in executing the contract will be notified, and the practicing IT project manager will assume responsibility for delivering what was agreed to in the contract.

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About Dave Gordon

Dave Gordon is a project manager with over twenty five years of experience in implementing human capital management and payroll systems, including SaaS solutions like Workday and premises-based ERP solutions like PeopleSoft and ADP Enterprise. He has an MS in IT with a concentration in project management, and a BS in Business. In addition to his articles and blog posts, he curates a weekly roundup of articles on project management, and he has authored or contributed to several books on project management.