Tech & Sourcing @ Morgan Lewis


When in-house lawyers start thinking about how to support a business client that is looking to implement a new or replacement enterprise resource platform (or more commonly known as an ERP system), we often suggest that they first discuss these 10 framework issues to get a sense of the scale, complexity, and timing of the potential transaction. While the below list certainly does not cover all of the issues that will need to be considered, it is intended to help in-house lawyers understand the objectives, parameters, and potential risk areas of a transaction.

A high-level summary of what we call the “framework issues” is set forth below.

  1. Know Your Scope
    • Assess the potential software vendors (are any existing providers?)
    • Describe the functionality/modules that are required
    • Determine which business units are in scope
    • Define what geographies are in scope
    • Determine if an existing system is being replaced
  2. Key Objectives and Success Factors
    • Define the business objectives in implementing the new system: standardization, efficiency, better data
  3. Deal Structure and Documents
    • License to base software and ongoing support
    • Phase 0 (or design) consultant agreement
    • System integrator agreement
    • Hosting agreement
  4. Third-Party Dependencies
    • Software
    • Interfaces
    • Hardware
    • Data feeds
  5. Internal and External Change Management and Communications
    • Internal acceptance and buy-in
    • Process and operational changes
    • Training
    • Communications to third parties (vendors, customers, contractors)
  6. Implementation Plan and Milestones
    • Phases (business unit, functionality, geography)
    • Key milestones (design, build, test, deploy, hypercare)
    • Ability to change plan/scope
  7. Map Out the Fees from Phase 0 to Completion
    • Milestone-based payments
    • Expenses
    • Time and materials
    • How changes will be handled
    • How to limit budget overages
  8. Use Rights and Who Owns What
    • Scope of license and pricing metrics for license
    • Consider existing and future use cases, including acquisitions and divestitures
    • How long are you locked in?
    • Are there swap rights if certain modules/functionalities are not used?
    • Define who owns
      • Modifications/customization
      • Configurations
      • Documentation (including user manuals)
      • Business processes and methods
      • Training materials
  9. Key Risk Areas
    • Budget overage
    • Schedule overage
    • System defects
    • Excess localization
  10. What Happens If Things Don’t Go Well?
    • Right to put activities on hold
    • Termination rights
    • Software escrow
    • Milestone credits
    • Other damages

As noted above, the objective of the foregoing list is to help in-house lawyers obtain the information they need to structure and support ERP transactions. As with any complex transaction, the specifics will vary from deal to deal and the appropriate legal and subject matter experts should be consulted.