SAP Negotiation Alert

Author: Steven Zolman

This is an SAP Negotiation Alert

If you have an existing agreement or are considering a new agreement with SAP – watch out. New language is emerging that is extremely concerning.

Here is a quick summary:

SAP is including new language into Agreements, Amendments and Appendices which may limit the contractual rights of its customer, disallowing any future termination of maintenance and support services, of any software and users on an ad hoc or line item basis, or termination of any individual appendix. SAP is including new language that suggests the only way it will contemplate any kind of maintenance and support services termination is if it applies to all Appendices and licensed software. Clearly, SAP is addressing the recent market changes and responding to increased threats of competing support alternatives. This “all or nothing” approach seems to be aimed at eliminating a client’s ability to manage any kind of blended support solution.

In addition to this troubling development, SAP’s Enterprise Support Schedule, has some interesting new provisions:

SAP Enterprise Support offered by SAP may be changed annually by SAP at any time upon three months prior written notice. This gives SAP the unilateral right to redefine the service description (including material reductions in support) with no reduction of fees.

After the initial term, the Enterprise Support Fees and any limitations on increases are subject to Licensee’s compliance with the Customer Center of Expertise (CCOE) requirements

Interestingly, SAP is also apparently requiring its customers to “regularly engage” in a service planning process with SAP. SAP may claim that it is trying to get closer to its customers to improve the value of the relationship, but some of our Clients are concerned that this is simply a way to capture intelligence about the account that will be turned into downstream selling opportunities. Regardless, it is telling that SAP expressly states it will have the ability to raise your prices if you are found not to be in compliance, but there is no commitment that SAP will not raise your prices if you remain compliant.

Another mind-blowing apparent value grab is SAPs provision that penalizes its customers who do not establish and maintain a certified CCOE in accordance with SAP’s definition, (including any required recertification). SAP claims that it shall be entitled to increase Licensee’s then current “maintenance percentage factor then in effect” if the Licensee is found to be non-compliant, but does not specify the increase or how the increase will be determined or calculated! SAP further requires its customers to certify their CCOE through an audit, conducted by SAP, verifying compliance with the obligations set forth in the Agreement. For details of the certification and re-certification process, there is a reference to the SAP CCCNet in the SAP Service Marketplace, which presumably may be modified at SAP’s sole discretion at any time. This could be an attempt for one of the largest value grabs in the history of support services. Presumably, if clients are found *by SAP* not to be in compliance with SAP’s definition of the CCOE as modified *by SAP* at any time, then SAP could unilaterally increase the ‘maintenance percentage factor’ to whatever it wanted to. Ha! and you thought a 29.4% increase was outrageous.

SAP also extended the notice period of termination to 90 days. Presumably, customers that fail to provide notice at least 90 days in advance that they intend to cancel Enterprise Support will still be obligated to pay the entire upfront annual maintenance and support fees.

SAP is also requiring that for its customers to be eligible to receive Enterprise Support, that Enterprise Support is the only support and/or maintenance services received by Licensee for all SAP software licensed by Licensee. This means no mixed support environments, or customers will lose their rights to Enterprise Support (no mention of a pro-rata refund of the unused portion of support).

In summary, SAP appears to be continuing the oligopolistic behavior it borrowed from Oracle when it increased maintenance service and support fees by 29.4% (up from 17% to 22% of the net license value) with this move towards an ‘all or nothing’ Enterprise Support model. In addition, SAP has included more “responsibilities and obligations” (SAP’s own words used in their agreements) for their customers to comply with in order for them to receive the more costly Enterprise Support. Further, if SAP’s customers fail to operate their CCOE in strict compliance with SAP’s interpretation of best practices, including opening up their organizations to more inspection from SAP, then there is nothing to prevent SAP from levying additional increases to the maintenance fees immediately, as well as in future years. While SAP may be subject to, and held somewhat in check from public relations scrutiny, from a contractual perspective there is no limit on what SAP could charge customers for Enterprise Support.

Customers beware. This seems to spell out how SAP views its relationships with its customers quite succinctly. This seems to indicate that SAP wants to (i) charge higher costs, (ii) provide fewer options, (iii) enact more restrictions, (iv) require more obligations, (v) levy more future pricing pressures, and (vi) force you to surrender more account control.

With the emergence of competing market opportunities, and the momentum behind decompiling monolithic architectural approaches to a single sourced software supplier solutions for the entire enterprise application stack, one has to wonder if these new *company-centric* positions from SAP will have the desired impact or if the velocity of customer defection to viable alternatives accelerates.

Please contact us if you have any questions regarding any of your technology agreements or relationships.

Comments
We are having this very argument right now with SAP. We elected not to renew several products on a line-item basis, consistent with how we are invoiced and acquired the products. We can see no language in our exsting agreements to preclude this normal behavior. Have you seen situations where this already exists, or is this entirely new language that is trying to be enforced early?

by Gary Gauthier on Mon, April 19, 2010 – 1:45pm
Gary, Thanks for the post! I’m assuming this ‘argument’ is likely over your desire to want to cancel a partial appendix? If that’s the case, SAP will argue that the appendix is a series of products that were purchased at the same time, and therefore warranted a ‘special discount’ based on the volume and/or product mix and/or special incentives at the time of purchase, and to terminate (not renew) maintenance on some, but not all, of those products now would violate an SAP policy. Depending on what your agreement says about these provisions, if the licenses are no longer in use and you don’t have any plans to reinstate them at any time in the future, you may have more luck trying to terminate the actual license grants (which will eliminate the associated maintenance) on an entire Appendix. Let me know if you would like to discuss further. We offer a no risk, no cost, no obligation assessment. Cheers, SZ

by Steven Zolman on Mon, April 19, 2010 – 5:24pm

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