A review of new software products that can make a big difference to your business

Watch out for maintenance

By Michael Burns

Companies on the hunt for a new system typically do an ex- haustive analysis of various options before they make a tentative selection. Once they do, the subject of maintenance inevitablyrears its head. For some strange reason, vendors wait until the very end of negotiations before they bring up the subject. They might even treat it as a mere formality. The question is, should you sign the contract as is?

The short answer is no. Everything should be negotiable, including the maintenance contract. Usually, vendors will ask you to pay maintenance on the list price. But in a competitive situation, they might allow you to negotiate using the discount price.

Maintenance usually runs about 18% of the licence fee. But the contract could include escalation clauses, such as standard cost of living increases. At the very least, make sure there are no increases for three years. A ceiling should be provided after that.

In the fee, only a small portion goes toward actual maintenance. Most of the fee goes into R&D. Any vendor that does not invest heavily in R&D will not be able to compete with more nimble companies that leverage new technology. You want your vendor to be successful; otherwise, it will be purchased for its customer list, not its product. That will leave you with the task of converting sooner or later to a new system.

So you do need to pay the vendors something. But is that something worth the price? You might not want to upgrade every year, especially if you have customizations that will need to be adapted to the new system. You might be able to live quite happily without new features that add complexity or require more computing power. Some vendors will require you to upgrade whether you want to or not. But you can negotiate the length of time you can wait before upgrading.

But there may be compelling reasons to keep current. Your chosen vendor might also be working on new software that won’t be available for years. This new software might be chargeable unless you keep current with upgrades and pay your maintenance fees. Some vendors will not support their clients unless they stay relatively up to date. The vendors would argue — rightfully — that problems encountered may be fixed in the newer release.

Maintenance and support can mean very different things to different vendors. One vendor might give you unlimited annual telephone support, while another might give you none. What’s more, even “unlimited” support has some limits. Vendors need to protect themselves from taking endless calls from poorly trained customers. They will also vary in their responsiveness. It won’t do you much good if your vendor takes several days to get back to you for a critical problem.

Let’s assume you have unlimited support and your contract includes an adequate response time. Will you get your money’s worth? During the implementation, your support questions will probably be answered by the implementation consultants rather than the vendor’s support department. You should ask for a break on maintenance fees during this period. However, the vendors will say you are getting support indirectly, since the implementation consultants are calling them instead. The vendors have a point but the consultants won’t be making as many calls. And once the system is up and running, support calls should be less frequent. Some vendors will allow you to purchase a bundle of support hours to be used as required.

Vendors have a good thing going with their maintenance fees. Today an investment in business systems should be a 10-year proposition. Ten years at 18% of the purchase price isn’t bad. Vendors are more willing to discount their licence price than their maintenance price. But remember: everything goes on the table before your signature goes on anything.

Michael Burns, MBA, CA, is president of 180 Systems ( http://www.180systems.com/), which provides independent consulting service, including business process review, business case development and system selection. Michael can be reached at 416-485-2200 or mburns@180systems.com.