When Contracts Go South: Managing Legal Challenges in ERP

In this week's edition, we delve into the complexities of managing legal challenges in ERP contracts with our special guest, Marcus Harris from Taft Law Firm. Hosted by AV, Founder and CEO of Avero Advisors, this insightful discussion sheds light on the nuances of navigating legal intricacies in the public sector. Tune in as we explore the critical role of expert counsel in drafting contracts that mitigate risks and ensure successful ERP implementations. Don't miss out on this invaluable conversation!

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Transcript

00;00;33;09 - 00;01;02;28
Unknown
Morning and welcome to this week's edition of Avero Live. Today we have Marcus Harris from Taft Law Firm as our guest. And before we get going, I'm going to you know, let me tell you a little bit about who Avero is. We are an agnostic, independent third-party ERP and IT consulting firm that specializes in the public sector and helping governments modernize their operations through better business processes, better strategies or effective project management, and fermentation of large-scale systems.

00;01;03;00 - 00;01;29;05
Unknown
We go live every Wednesday on all platforms social. And then we also have a podcast and YouTube channel that has all of our content available to you at any time. So let me start off today by welcoming Marcus. Marcus, Welcome to the show. Marcus and I met last year at a conference and I followed his work really closely because it really dovetails into what we do here at Avero.

00;01;29;08 - 00;01;47;25
Unknown
So Marcus, welcome. Thanks, AV. I'm happy to be here and happy to talk to you and to all your followers. And frankly, like I said, we met last year at a conference. And I was impressed immediately with just, you know, the depth of knowledge that you guys bring to the table and your ability to talk about these subjects.

00;01;47;25 - 00;02;11;21
Unknown
You're a keynote speaker and you had some breakout sessions at this conference. And I walked away just knowing that you guys had some pretty deep industry experience. And I think it's it's kind of unusual because, you know, I do a lot of commercial contracts and litigation resulting from those those types of contracts. But, you know, I think a lot of the work that you guys do is on the government side, and those are just incredibly complicated and nuanced.

00;02;11;21 - 00;02;31;28
Unknown
And I've dealt with those in the past. And you have to have an expert like yourself in your team, you know, guiding you through that process. Yeah. And a lot of times it doesn't happen, right? People think they can do these things by themselves because they've done a real estate contract or something else. This is so specialized, which is what drew me to your content, right?

00;02;32;01 - 00;02;57;03
Unknown
When you gave your talk at Stratosphere last year. This is such a niche that you've crafted for yourself. So tell us a little bit about how you know you're a lawyer, but what led you to urban tech legal work? Yeah, you know, I went to law school knowing that I wanted to do legal work in the field of intellectual property, which all of this actually falls under.

00;02;57;05 - 00;03;24;25
Unknown
And the path that I kind of forged for myself really was in this technology space. I worked at a law firm right out of law school that did this type of work. It was a technology law boutique. And then after that, my stint at that law firm went into working in-house at a couple of large software companies.

00;03;24;25 - 00;03;47;10
Unknown
One was SAP, where I got just a tremendous amount of experience. You know, it was the early, early 2000s and SAP was firing at all four cylinders, but also SAP got a lot of cylinders, it's a big company, right? And so, I mean, they were just going gangbusters at the time. We were doing huge multimillion-dollar deals at high volume.

00;03;47;10 - 00;04;12;09
Unknown
And you just you know, they threw me into it, doing it literally $1,000,000,000 deal with a couple of large auto manufacturers, software development deal. And it was just an amazing experience. And then after that, I worked at a company called SSA Global, which was acquired by in four and did a lot of substantive work for them. And that's that's really kind of what started me in this area.

00;04;12;11 - 00;04;40;21
Unknown
And, you know, you see the way that some of these companies operate, not necessarily those companies, but certainly in my private practice, you know, you see how a lot of these software vendors and integrators pitch their products and, you know, where these things can kind of go sideways. And, you know, there's a lot depending on the statistic that you're looking at or the survey, you know, upwards of 70% of these things result in some sort of a failure.

00;04;40;24 - 00;04;56;20
Unknown
And I think if you can, you can get it right on the front end through, you know, not only in the contract negotiation process but certainly that's a big part of it. You get your contracts, right? You get the clauses and the provisions in those contracts drafted appropriately to give you a dog in the fight.

00;04;56;22 - 00;05;17;13
Unknown
You know, then when it does go sideways, at least you get something. Do you get some recourse available to use recourse through litigation or whatever it is, a mediation trying to resolve the dispute? You said earlier about, you know, people that do these contracts themselves. And that for me is just you know, it's a recipe for disaster.

00;05;17;13 - 00;05;43;10
Unknown
I get a contract like that, a multimillion-dollar contract that, you know, someone in-house is drafted and they want to litigate. And you're like, well, you know, this thing just forecloses a lot of opportunities you might have otherwise had if you would have had the foresight to ask for certain things, certain remedies and resolutions. So it's it's it's a fun area of practice and it's very rewarding.

00;05;43;12 - 00;06;06;11
Unknown
So you've been on the inside on the other side, then as far as you know, what you do now is concerned because do you still represent software companies or are you still solely on the client side? You know, I do. I represent both. I think over the course of time, it's really shifted to really more of a representation of of the customer.

00;06;06;14 - 00;06;33;02
Unknown
Rather than the software vendor. And, you know, I think there's just a lot more customers out there than there are software vendors and integrators. So, you know, there's a little bit more of an opportunity, but we certainly still represent software vendors. I was on the phone yesterday with a large software vendor, a European-based software vendor, and they had some issues not related to ERP contracts, but their underlying software, intellectual property protection, and that kind of thing.

00;06;33;02 - 00;06;59;13
Unknown
So we really get around so to speak. But that's where, you know, this kind of balance counsel comes in because, you know, if we're going to be negotiating against a large vendor, we just negotiated with this app in the last couple of weeks here and sent out a revised contract for them. Yeah, we're going to ask for things that are reasonable in the concessions that we're going to request or not, something that's going to come out of left field.

00;06;59;20 - 00;07;24;00
Unknown
You know, we know what's industry standard. And, you know, the thing that makes me chuckle is when you get an experienced in-house attorney from one of these software vendors or integrators try to tell, you know, we never agree to that. You know, little do they know that, you know, we've negotiated literally thousands of these agreements and we've been able to get these concessions from from AP, for example, in the past or whatever vendor it is.

00;07;24;03 - 00;07;45;20
Unknown
But a lot of that's really dependent on, you know, the leverage that you've got, how much money you're spending, how important your industry vertical is to them, or what your licensing. So, you know, it's not every deal is the same, and not every time you go up you're you're about are you going to get the same the same concession.

00;07;45;23 - 00;08;10;08
Unknown
Yeah. And that's great value you bring to the table. Right. It's it's you've seen all of these plays before. So, when a customer says, hey, I want to change the global SLA for SAP or Workday, how much leverage does a small county or even a large county have against a large company like that that's global? You're not going to get them to budge on any of that.

00;08;10;10 - 00;08;27;20
Unknown
It's going to be really challenging. I mean, look, here's here's what these vendors are going to tell you on a pretty consistent basis is that, look, we have one offering that we push out to our entire customer base. Even if you're a small government entity, a large government entity, a Fortune 500 company, everybody gets the same terms and conditions.

00;08;27;22 - 00;08;47;23
Unknown
There is some truth to that, but there's also not some truth to that. Let me break that down a little bit. If you're talking about an SLA or some sort of a support obligation or something like that, you're not going to be able to change that in a very substantive way. That's going to change the way that that company delivers that particular service or product.

00;08;47;26 - 00;09;08;20
Unknown
Okay. It is not it's not going to help. You're going to have enough leverage for them. One of their business models is their business model. Now, on the other hand, I mean, you know, if they're not giving you uptime guarantees that are industry standard or reasonable and they want to, you know, push those obligations off, you know, we'll be able to know, well, that's not reasonable.

00;09;08;20 - 00;09;26;15
Unknown
And here's what they would typically agree to if you just ask them for it. That's a little different scenario. Right. Or, you know, if there's a particular warranty or a limitation of liability issue and they're not they're not budging. You know, this argument that well, it's a it's SaaS product and it's got to be the same for all customers.

00;09;26;17 - 00;09;43;17
Unknown
It doesn't necessarily work in that situation. So you have to have an understanding of when that's a reasonable argument and what it's not a reasonable argument. And I'm sure I'm sure you run into these things, these issues on a pretty consistent basis yourself. Yeah, we do. And you know, especially with our clientele, they're they're they're behind the times generally.

00;09;43;20 - 00;10;08;10
Unknown
Like they haven't done a large-scale implementation in about 20 years on average. So when you're trying to compare this with how you built your last year's system on-premise with homegrown talent and you had lots of customizations Saskatoon checks tend to be a little out of the world for you as a as a purchasing isn't even as a CIO they're not comparable.

00;10;08;11 - 00;10;30;12
Unknown
So there's a learning curve. We do a lot of education on what things mean in 2024 versus what they meant in 1994. So there's a lot of going on when when when it comes to our find-out. Yeah. And I think that runs that runs true in the commercial in the pure commercial space as well because if the lifecycle of these products it's about you know 1520 years.

00;10;30;13 - 00;10;57;01
Unknown
Right. And you know you may in your career and on the client side you know do one or two implementations you know for your entire career. And so, you know, engaging somebody like you or me that does this for a living and has seen hundreds to thousands of these projects, you know, that's only going to put you in a good place.

00;10;57;04 - 00;11;17;07
Unknown
And like I said, you know, give you a dog in the fight if something goes sideways in the future. Well, and it doesn't always have to go sideways. So on an ongoing basis, there are so many nuances within a contract like this. Yeah, payment terms. What happens if that switch steams on as what happens if you if you, you know, slip past a certain date or milestone?

00;11;17;09 - 00;11;55;27
Unknown
There are real consequences on the client side for, for either pushing too hard for hitting a certain date or slipping past the date. And, and those things are not make or break but they they hurt us. Yeah no I absolutely I mean, I think, you know, my, my, my goal and I've said this before with every one of these contracts that we would negotiate is for this to be used as a tool not only to manage the implementation project or the integration of the software or the or the access or licensing of the software, but really as a tool to manage your relationship with that vendor throughout the lifecycle of your use of that particular product.

00;11;55;27 - 00;12;17;25
Unknown
Right? So for that 20-year cycle or whatever it is, you know, you've got an outline of how you guys are going to deal with each other and all the expectations are set out in there. So, you know, if you miss a payment, you know, you should know ideally exactly what happens. Right. And, you know, if you were lucky and you negotiated it, you know, a missed payment, does it result in a suspension of the service?

00;12;17;25 - 00;12;41;02
Unknown
Right. There's some kind of middle ground and there's an opportunity to resolve that issue, a make-or-break issue. So that's the value that I think we can all bring you on this advisory side to the table for our customers and clients. Yeah, absolutely. And you know, going back to the topic we're talking about, when contracts go south and it's like you can you could have done all of these things right.

00;12;41;02 - 00;13;21;15
Unknown
And I've seen clients do it right. Yeah, not at all their I's and cross all their teams did the requirements did the pre-work that we profess so much that did it well and then the vendor comes in and they've clearly lied about their capabilities. Yeah. And you know, look, there's no amount of preparation contract negotiation that you can do that protects you from somebody just, you know grossly misrepresenting or fraudulently representing what their software product can actually do or how long it's going to take or the skill set that they have or their understanding of your industry.

00;13;21;17 - 00;13;44;05
Unknown
You can't contract around fraud, right? You can't contract around misrepresentations. So you've got to anticipate those types of things. And you know, what do you do when it does go south in the contract, You know, it has been breached or there's, you know, some substantive dispute. And, you know, for me, it was a couple of things really.

00;13;44;05 - 00;14;12;18
Unknown
I mean, hopefully, you know, you've put the mechanisms, mechanisms in place in that agreement to address, you know, what happens when things go sideways, Right? When communication breakdown, hopefully, there is, you know, a dispute resolution process that's outlined in the contract where executives get together and they do something, you know, maybe what you put in that contract is some sort of a mediation process or an arbitration process.

00;14;12;18 - 00;14;37;28
Unknown
So it's something short of litigation. But, you know, but even before you get to that point, a mediation-arbitration obligation, I mean, I think as a customer, you have to make a decision, you know, have I done everything I can to right-size this project to get this project back on its feet. And I put the time, energy, money, and resources into it.

00;14;37;28 - 00;14;55;23
Unknown
Does it make sense to even do that? And if it does, I think that's the path to go down. And if it doesn't, you know, then you start thinking about, well, what are my formal resolution processes? You know, is it mediation, arbitration or litigation? And the reason for that is, I mean, I think, you know, spending the money, you're going to spend money either way, right?

00;14;55;23 - 00;15;36;18
Unknown
You're either spending money on legal fees, which in this particular area, because of the technology and the nuances and the complexity, become incredibly expensive. It's a very it's a very high spend. This is not a slip-and-fall type of litigation. Right. And so, you know, the expertise that needs to be brought in from an expert witness perspective, the types of attorneys that you need, even the outside vendors to collect, identify and process all of you know, we call it ESI, electronically stored information, evidence, the documents, the document production discovery that can be incredibly expensive as well.

00;15;36;18 - 00;15;58;11
Unknown
So, you know, that money is almost always better spent, you know, focusing on your business, focusing on getting this thing right. Because at the end of the day, you don't want to sit in a courtroom. You want to have a software product that, you know, processes your transactions and makes you more efficient. And if you can get to, you know, reasonably close to what was promised, maybe that's the best resolution.

00;15;58;13 - 00;16;25;28
Unknown
So how much how much responsibility do you think is on independent consultants like us to advise clients on the right metrics to to identify when things go south? Right. I mean, at what point do you guys come in when we've lost all of our avenues to correct this thing and then, you know, the vendors just not delivering what the client thought they were like?

00;16;26;01 - 00;16;47;17
Unknown
I mean, I think you have an obligation to your client to tell them, look, you know, here, here is what you should be looking out for. And if you see these red flags, it's certainly going to be problematic. And here's where you need to direct your effort, because I think, you know, telling somebody, hey, you know, ditch the software product, let's start over.

00;16;47;24 - 00;17;28;24
Unknown
Yeah. Is not, you know, of course, a reasonable piece of advice. Right. Similarly, you know, you know, stop using the product and sue them isn't necessarily the right thing either. I mean, you know, you got to you got to look out for your client's best interests and do what's right for them. And I think oftentimes it really is in my experience, doubling down and trying to get that relationship back on track and get the product to where it needs to be so that there's got you got some at least minimal usability out of it, at least in the near future, so that you can then double down and get it to where it needs to

00;17;28;24 - 00;17;52;09
Unknown
be. Is that is that similar to kind of your perspective on these things? Yeah. Know, we actually had one client that I will not name that got into a contract, with a vendor and then brought us on to be the PMO project management office. And quickly we realized that the requirements didn't meet what the product could do.

00;17;52;11 - 00;18;10;27
Unknown
So this, this client was in a tough spot, right? What do we do? Like you said, we double down in and it wasn't even doubling down, but the vendor was asking them to accept a, you know, inferior process compared to what they were doing today. Option number two was we go back to the board and say, we made a mistake.

00;18;10;29 - 00;18;28;24
Unknown
You go back to the drawing board and it took a lot of fortitude on their side. They chose the latter, right? They ask us for advice and we were like, Yeah, this thing isn't going to do what you thought it was going to do for you. And it's a large SAS vendor that's not going to, you know, bend you and change their product.

00;18;28;27 - 00;18;53;20
Unknown
Yeah. So that the good part of the story is that we were able to prove based on the client's requirements and the processes, that this product didn't meet the requirements and it was misrepresentation. So it didn't quite go to litigation, but it went to some arbitration where they, they had to pay something to get another. Yeah, and that makes sense.

00;18;53;20 - 00;19;16;22
Unknown
I mean, you know, that that is an example of kind of, I think, the right way to deal with these things. I mean, you got to have the fortitude to admit, hey, maybe we made a mistake, right? Maybe what we did in vetting the software vendor or the software product or the integrator or whatever it is, that maybe we could have done a better job and maybe, you know, were partially at fault here.

00;19;16;24 - 00;19;42;00
Unknown
That's that's something to think about, too. And the complexity of these disputes really lies in part in the complexity of the products themselves. And in what I mean by that, I mean, you know, for every allegation that you can throw at a particular vendor, they're going to be able to throw an allegation back at you right? Okay. Well, you misrepresented the software.

00;19;42;03 - 00;20;09;01
Unknown
Okay. Well, the vendor is going to say, well, you know, it was an open and transparent sales process. You signed the contract after vetting not only the contract but the resources or excuse me, the references that we provided to you. You saw the software in action. You got a demo of it multiple times. So that argument is all water, right?

00;20;09;03 - 00;20;33;10
Unknown
That's the allegation. That's a counter allegation or hey, the software doesn't work. Okay, well, where in the contract can you point to where, you know, it doesn't comply with the documentation? Moreover, this is the vendor talking. You know, this software product has been implemented successfully in use successfully in hundreds of thousands of instances across the world. And only you, you know, or a handful of people can't do it.

00;20;33;12 - 00;20;57;16
Unknown
You know, this isn't our problem. It's your problem. Yeah. So, you know, you've got to navigate that. And that is not easy to do. Well, And, you know, most of these vendors have large, large-scale legal teams that handle nothing with this. Right. This isn't this is the one instance that I know of. They could have been dealing with the same thing with ten other clients.

00;20;57;16 - 00;21;19;25
Unknown
And we don't know about that. yeah. I mean, you know, the skeletons that you that you see uncovered during this discovery process with these major vendors is, you know, is amazing. And, you know, you see how some of these things are put together and the representations that they make. And you'd be astounded. And, you know, it's all subject to confidentiality and settlement agreements and that kind of thing.

00;21;19;25 - 00;21;43;24
Unknown
So I can't talk about some of these things, but certainly, you know, we're able to use our specific industry knowledge to our client's advantage. But, you know, it's it's it's pretty shocking stuff. And one of the interesting things that has come out of the pandemic is, you know, now a lot of these pandemic-era implementations and integrations are kind of coming home to roost.

00;21;43;24 - 00;22;12;13
Unknown
Right. And what's interesting about it is, you know, a lot of them were done remotely with offshore staff. And so that makes something that's difficult, arguably more difficult. Yeah. But what's nice from an evidentiary standpoint as an attorney is a lot of these sales demonstrations were done via Zoom teams online and they were recorded, which is something that we never got to pre-pandemic.

00;22;12;15 - 00;22;34;12
Unknown
We always believed that these you know, what your client's telling you, and it was misrepresented to the extent that it was. But we had a case in the last couple of years here that just got settled as the $18 million failure, you know, the European-based software company was at issue and their whole team was on the line, you know, saying this is real stuff.

00;22;34;13 - 00;23;03;14
Unknown
It actually it actually exist. If you buy this, we can we can implement it out of the box for you today. So it's not, you know, theoretical stuff. This is real and it exists. Come to find out it wasn't real and it didn't exist. Know? Yeah, it really was. And again, back to your point. I mean, you can do everything right, but if if they're actively lying to you, it means no matter, no amount of due diligence, reference checks and the like, you're going to be able to mitigate that risk.

00;23;03;17 - 00;23;24;22
Unknown
Yeah. So let's talk about what happens when it does go to litigation, because, you know, there's always there's always that chance where you just went live and the client, the someone's very strong of the client side saying, you know what, this was a mistake. Let's pull the plug. Let's sue these guys. Like you said, it's not the easiest path.

00;23;24;22 - 00;23;46;00
Unknown
The contracts themselves have issue resolution mechanisms built in before it goes to litigation, which can take a lot of time. But when it goes there where you have two strong parties not willing to budge, well, what happened in that scenario? Yeah, well, I mean, you know, look, the lifecycle of these litigations is incredibly long. It can be anyway.

00;23;46;00 - 00;24;14;05
Unknown
And I think if you're going to litigate against somebody like Oracle or ACP or even for you have to be prepared, you know, to just spend money because what they're going to do is they're gonna get you wrapped around the axle. They're going to make the discovery process incredibly difficult and they're going to outspend you on the legal fees and that's all by design to kind of, you know, bleed you out as this thing goes forward.

00;24;14;07 - 00;25;01;12
Unknown
So, I mean, from a practical perspective, you know, the process goes something like this. You know, you reach out to your your legal representative, they ask you for all the relevant facts, verify what you're telling them, look at some documentation, a reasonable amount of documentation to, you know, to verify that, you know, there is something that's actionable here, that there's a basis for filing a lawsuit that takes a good amount of time and then, you know, the goal is really to kind of paint the narrative of, you know, a software vendor, for example, that, you know, couldn't deliver over, promised, you know, kept asking you for more money, more time or patience to get this

00;25;01;12 - 00;25;24;01
Unknown
thing on the right track. But, you know, for whatever reason, couldn't do it because they were either inexperienced, incompetent or whatever, whatever it is. Right. It's all pretty similar from case to case. The allegations that you bring, it's going to depend on the jurisdiction that you're in. But typically what you have to do, you have to bring what we call tort claims.

00;25;24;03 - 00;25;52;14
Unknown
And the reason for that is the contracts are going to be so one-sided, reasonable and arguably oppressive that they're not going to get you real remedies if you sued just on a breach of that contract. So what I mean by that is, you know, if you've got a limitation of liability that limits the vendors, you know, the monetary outlay in the event of a breach of contract to the amount of software fees that you spent in the last four months, that number is not going to compensate you.

00;25;52;14 - 00;26;22;29
Unknown
Right? You have an $80 million software failure and you know, you've only spent $70,000 in the last year. That's what that's what's at issue. Right. That's not enough. So then what you have to do in order to get around that, you've got to get creative and usually either some sort of misrepresentation. And if the facts support it, what you do is you bring a fraudulent inducement, claim a negligent misrepresentation, claim you're going to bring maybe some statutory claims of unfair competition.

00;26;23;01 - 00;27;01;09
Unknown
So something along those lines that perhaps you have some ability to recover attorney's fees or some sort of fee, but, you know, that's kind of the lay of the land of what the allegations would look like. And, you know, typically the vendor is going to push back pretty aggressively on those kinds of allegations, file a motion to dismiss, and then, you know, you're either going to amend your complaint or just defeat the motion outright and then you're off to the races and you're in the middle of discovery and you're doing you're looking at hundreds of thousands of documents with a team of lawyers and you're, you know, traveling across the country,

00;27;01;09 - 00;27;30;06
Unknown
taking depositions of different salespeople that were involved in the process, you know, the consulting manager on the vendor side, for example, whoever it is, people that wrote code, people that were were at these meetings where the misrepresentations were allegedly made. So it spirals pretty quickly as far as intensity and cost and just the amount of work effort. And, you know, like I said, the economics have to make sense.

00;27;30;06 - 00;28;02;10
Unknown
I mean, if you're you know, if you spend 200 or $300,000 next week and the whole thing goes sideways and you want to litigate, that's probably not something that's worth litigating because, you know, the legal fees are going to eclipse that pretty quickly, I would think. Yeah. And you know, one of the analogies I use when I'm trying to sell services like this is is the risk profile is the same or greater than building a new schoolhouse or a stadium or a police station.

00;28;02;10 - 00;28;23;25
Unknown
Right. And most clients don't see it that way. It's sort of seen as if it's a software upgrade. And we're just going to download something and put it on there and it's a go. But the risk profile tends to be higher because to your point, it's hard to prove, right? Even if the thing doesn't work, it's hard to prove who's at fault here.

00;28;23;27 - 00;28;40;09
Unknown
Absolutely. And you know what? What I always say to my clients is, you know, the risk isn't so much that it's going to be a technology failure. Right. It's going be a people failure, you know, in one way or the other. The software works. It may not work the way that it was told to you that it would work.

00;28;40;09 - 00;29;02;28
Unknown
And it may not work in a way that works for your business, but you know, it works. But, you know, that's like saying, okay, well, you know, I've got a 3000 square foot house when I needed a stadium. Okay, Well, yeah. Does it work? Yeah. Shelter, I suppose. Right. But if there's a big backyard, we can hold events in the backyard.

00;29;02;28 - 00;29;28;01
Unknown
But it doesn't do what? What it was supposed to do. And I think, you know, one of the other issues that increases the risk profile of these projects is, you know, you've got these offshore resources that come in and come out, you know, nope, don't normally get, especially with big consultancies. You don't normally get the A-Team, right? I mean, you're getting, you know, kind of younger consultants without a lot of experience.

00;29;28;01 - 00;29;51;02
Unknown
Now they're using your project as a training ground that may or may not be the model that they got. And then on the client side, I think there's challenges as well, because you have people that are responsible for implementing this project or this product, and they also have full-time jobs that they're responsible for. Right. In the last time they've done something like this is either never or maybe 15 years ago.

00;29;51;05 - 00;30;16;28
Unknown
And so they're relying to a large extent either on the vendor's representations or the integrator's experience. And I think that's one of the worst things that you can do, is have an inexperienced client-side team that relies solely on the representations and experience of the integrator. I mean, that's like the Fox Garden in-house to some extent, right? Yeah, Well, that's where we come in, right?

00;30;16;28 - 00;30;39;03
Unknown
Independent third-party consultants. And I think that that makes the case for doing all the stuff upfront. Right. As much as possible. I can nail everything down, but if you have a good understanding of what house you want to build, what kind of windows do you need and what kind of marble you need and what bathroom and how many bathrooms you can go into this saying, Build me a house.

00;30;39;03 - 00;30;56;20
Unknown
And you're right, you might be thinking of a stadium and you have a, you know, vendor builds you a hut and says, that's the house. Didn't specify what kind of house. Now let's go to litigation over that. That's not going to work. Right. Exactly. And that's and that's where the issue issues, right? Yeah. So what's the worst?

00;30;56;20 - 00;31;34;20
Unknown
And without naming names, tell us some horror stories of the worst, worst litigations, and negotiations you've been part of. Yeah, well, there's one that really comes to mind. And it was a large vendor, you know, one of the big ones, and the vendor was on excuse me, the customer. It was a large national retailer direct-to-consumer manufacturer, retailer, and distributor of pet products.

00;31;34;22 - 00;31;59;28
Unknown
Okay. So you know, think leashes, collars, you know, dog toys and that kind of thing. And it's an early adopter of a certain piece of, you know, kind of newer technology that this very well-known software vendor put out. And they just can never get it right. The implementation takes way longer than it's supposed to. It's way over budget.

00;32;00;02 - 00;32;28;27
Unknown
And they start they flipped some sort of payment processing thing on and instead of, you know, billing credit cards appropriately, it apparently does like a hold on the card of something like, you know, $5,000 for every individual that's trying to buy these products. And, you know, it's putting their account overrun or overdrawn out of balance. All these things happen.

00;32;28;29 - 00;32;55;18
Unknown
There are so many complaints about the software. Once they flip the switch they have to engage call center, it is to take all of the complaints that are coming in. They get reported to the police and the FBI for fraud. They're they could not actually recover. And that client, unfortunately, actually went out of business because of a failed ERP implementation.

00;32;55;20 - 00;33;26;27
Unknown
So that's probably the worst result. You know, and it was sad. It was a family-run business that had been in this guy's family for 100 years, was very large and they were done well. But really, the reason why they ended up going out of business was directly related to the failure of the software implementation. And if you were able to settle that with, well, you're able to settle with the vendor without having to go to court and it was a multimillion-dollar settlement.

00;33;26;29 - 00;33;52;03
Unknown
The integrator that we sued, we sued them in the Southern District of New York before Judge Wood. And we also had an arbitration provision in that agreement. And we arbitrated certain certain elements of the contract, the arbitration that went on for some time, and we ended up settling with them as well. But, you know, all that money wasn't enough to save the company.

00;33;52;05 - 00;34;11;06
Unknown
Sure. Yeah. And it was terrible. I mean, what do you get out of it in the end? Yeah. You know, you don't get much hearing, you know, And I'm sure you get some horror stories as well. yeah. I mean, none of that went to litigation or none that, you know, created a company to go under our, our clients or government.

00;34;11;06 - 00;34;39;02
Unknown
So really hard to bring one down. Yeah. And you know, the worst ones are where they've implementations of failed and they don't realize that it's a failed implementation. Well right, so it's layers upon layers of either it's either you know not paying attention to the main, main facts of the project or being ignorant about whether or not the vendor is lying to you.

00;34;39;02 - 00;35;00;20
Unknown
So in the worst ones really are where it just goes on for four or five years and nothing's been accomplished and the vendor keeps milking for money and really are you you live. The other one is when the vendor says you're going to go live on a certain date and then can back up how they came up with that date.

00;35;00;23 - 00;35;29;04
Unknown
And on that day, you know, because the clients agreed to all of this. Right. They say, we're going to go live in March, sign here. And on March 1, they say, okay, all the lights turn green. Your life, here's your invoice and we're gone. Wow. Right. And then we actually have a client like that where they went live and the vendor since then has been unresponsive to the point where they've held invoices to the tune of one and a half million, 2 million bucks.

00;35;29;06 - 00;35;51;12
Unknown
And these big vendors, that big vendor just doesn't care about the small client. Wow, that's amazing. Yeah. What do you do? Do you. Do you know, you've held back money. It's one of the biggest levers you can pull with a vendor. And that doesn't work. They've sent threatening letters and emails. And I guess the next step will be to, you know, pull some formal strings.

00;35;51;14 - 00;36;13;16
Unknown
Yeah. And it's not going to go anywhere. Right. Right. And I'm sure these government entities are kind of reluctant to litigate these things and publicize, you know, the failure and then also have to justify the legal fees that they're going to spend to recover from, you know, the damages that that the vendor is brought on them. Yeah.

00;36;13;19 - 00;36;36;01
Unknown
And more often than not, it comes down to not having the resources in-house to catch these things. Right. Everyone has day jobs. And if you're taking on a $30 million implementation, you better not rely on your already thinly stretched resources. So you need to factor in bringing in people like, like ourselves or your team to do the very specific things that we're good at.

00;36;36;01 - 00;36;56;16
Unknown
Will do it and we'll get out of there. Yeah, yeah. And I think that's a really good takeaway too. I mean, you know, that's what's so important because, you know, the lack of experience, lack of resources doesn't serve you well. And, you know, like we've said a couple of times in the stream, you know, these things are difficult and they're nuanced.

00;36;56;19 - 00;37;18;01
Unknown
And, you know, the failure rate is high and it's high because of all the things we've been talking about. Yeah. And if you do this right, Marcus, this should be a once-in-a-career thing for you, right? Unless you change companies, this is you've chosen this life as you and I have. This should be a once-in-a-lifetime thing because of sass and the promise of the cloud and all these new things.

00;37;18;01 - 00;37;43;16
Unknown
You shouldn't have to do this every 20 years. Yeah, you really shouldn't. And you know, that's the way it should go. And you know you shouldn't. It's the failure of failure certainly is the exception to the rule today. And, you know, hopefully, it will continue to be that way. And, you know, I can't imagine a greater, you know business disruptor with a higher risk profile than than some of these projects and not doing it the right way.

00;37;43;16 - 00;38;08;23
Unknown
Because, you know, in the example that I gave, for example, you know, it's it can be devastating to your business. Yeah. So I'm going to take some audience questions. How do ERP contract negotiation strategies differ between public and private sectors? What lessons can be translated from one sector to the other? I think I think they're the same. I think I think the contract management strategies.

00;38;08;23 - 00;38;32;14
Unknown
Sure. And it depends on what they mean by contract management strategies. But I think, you know, certainly the negotiation process is going to be similar. Certainly, you know, the majority of the issues and concerns that are going to be presented, you know, in those contracts are going to be similar where I think there could be some changes or differences, rather, between a commercial space and a public space.

00;38;32;19 - 00;38;54;19
Unknown
The private space is, you know, some of the nuances is to, you know, what these governments can agree to and what they can't agree to, you know, with respect to, you know, complying with certain laws or forcing the vendor to comply with those laws, certain, you know, limitations on, you know, what kind of warranties, indemnity limitations, the liability they'll agree to.

00;38;54;19 - 00;39;20;01
Unknown
All of those are going to be a little bit nuanced in the public sector. But generally, I mean, I think you're right, the risk profile is going to be the same in the the pathway to mitigation is going to be highly similar, right? I mean, you're going to you're going to ask for, you know, reasonable concessions that that, you know, reduce the likelihood that, you know, you can't leverage the contractor advantage in the future.

00;39;20;01 - 00;39;52;06
Unknown
I mean, the goal is to get, you know, a reasonably balanced contract out of this. Yeah. So we focus on software markets and that's your practice and ours for the most part. But have you ever encountered litigation or arbitration or negotiation around cloud storage or co-located, you know, infrastructure or managed service providers? You know, not so much. But, you know, I think I think that certainly is coming down the pipeline in the very near future.

00;39;52;06 - 00;40;15;20
Unknown
I mean, you know, cloud storage and data security and those types of things. You know, what happens when, you know, you're in a multi-tenant environment and your data is inadvertently shared with someone else. And, you know, all of those things, I think, are at the forefront of legal issues and risks that your clients can be thinking about.

00;40;15;20 - 00;40;43;21
Unknown
And I think one of the things that is coming down incredibly fast is how do you mitigate the risk of large ERP vendors or even not-so-large ERP vendors incorporating and utilizing artificial intelligence in these in their products? Right. And that goes to, you know, what kinds of warranties regarding ownership. You know, what happens to your data?

00;40;43;24 - 00;41;05;25
Unknown
Who can use your data? Who owns the inputs? You know, that are being put into the large language model, for example, And then who owns the outputs? You know, there's that Samsung example where Samsung, you know, put into an API tool, some trade secret information that then the A.I. tools being trained on. You know, that's just a horror story.

00;41;05;25 - 00;41;33;01
Unknown
I mean, you know, so I still think these things are primarily software related, but, you know, there's a lot of risks just in this space in general, whether it's related to new technologies, software, you know, the way that the collateral services are being provided to you, you know, all of those things in the present, you know, pain points in, you need to think about them, right?

00;41;33;04 - 00;41;59;14
Unknown
I mean, there's a variety of different, you know, kind of service providers that all go along with digital transformation. You know, if it's, like you said, co-location agreements or co-location services, you know, those have their whole, you know, own risk profiles. And you bring up a great point with I was the data is taken on a whole new meaning like you could the traditional definition is can I get my data back when I need it when I fire you guys?

00;41;59;16 - 00;42;22;07
Unknown
Yeah, but now what did you do with it exactly? I got it back. Right? Right. I mean, what are your rights to the data that the model has been trained on and is being utilized by other people? You know, assuming it's a you know, it's an open it's an open model, but, you know, it creates just a whole host of of legal issues and risk issues as well.

00;42;22;07 - 00;42;44;26
Unknown
I mean, you know, God forbid you put confidential, proprietary information in there. And now this model is being trained on it. You know, you you think you own it. And, you know, per the provisions of your non-disclosure agreement, maybe you don't know. Yeah. So, you know, all of these things are novel issues in their novel, you know, not only in the contract space but just in the courts.

00;42;44;26 - 00;43;08;22
Unknown
Right now. There's I think there's 19 different A.I.-related cases that are, you know, going through the court system, dealing with issues of copyright infringement and ownership of intellectual property. And so those are all going to provide insight into how we deal with these in the contracts. The other question that I have is, you know, we talk about best-of-breed solutions quite a bit, right?

00;43;08;22 - 00;43;37;03
Unknown
It's kind of become a buzzword because you're not, you know, the monolithic sort of systems that claim to do everything is sort of seen through the not-as-very specialized things that can do a function and tie in with other systems. So we recently had a contract that we negotiated for a client, a fairly large government entity, and they have eight different vendors that will replace their legacy system, right.

00;43;37;03 - 00;44;09;23
Unknown
And then have one S.I. that's responsible for you know, one major system, but responsible to integrate the rest of them into the major system. If things go south, where's the where's the responsibility? Because that is a nightmare scenario if it doesn't go well. Right. So it contracts. Yeah. And we've run into this problem multiple times where you have a large-scale digital transformation with multiple vendors, you have multiple solutions.

00;44;09;26 - 00;44;32;09
Unknown
They're all kind of interdependent on each other. And one of them goes off the rails from a perspective. And, you know, you may even have, you know, different teams of consultants from different, different companies in there, you know, integrating, implementing, which was not necessarily, for example, one system integrator, but, you know, everybody's going to start pointing at the other guy, right.

00;44;32;16 - 00;44;52;16
Unknown
And getting to the bottom of where the fault is is going to be incredibly complicated from a legal perspective. And that's a scenario. It is a nightmare scenario because not only do you sue, you one vendor, you probably going to sue multiple vendors and bring them or at least bring them into the litigation in some context.

00;44;52;16 - 00;45;15;02
Unknown
And now you're going to have to subpoena them, you're going to have to depose them, and they're all going to provide conflicting information. I mean, you know, that's a that's a very difficult problem that can get very expensive very quickly. And even I mean, even that would be, you know, you've got to take that into the analysis as to whether, you know, is there a cost benefit to to initiating a litigation in this area like that?

00;45;15;02 - 00;45;41;00
Unknown
Because you not even want to. Right. Yeah. I think the smart money would be should be on effective. Yeah. More management and just making sure that this thing doesn't doesn't remotely go sideways There'll be hiccups. Yeah but none that can be avoided without with good management. Yeah. That would be an incredibly complicated project Right. And getting that thing managed to the T is going to be critically important.

00;45;41;03 - 00;46;02;11
Unknown
Yeah, well, Marcus, I think it's been a pleasure having you. We should do this again. Definitely. Let's make this a recurring theme on our livestream, and I really thank you for your time today. Is there something we don't cover that that's burning in your head that we should talk about? No, I think I think we really covered most of the big topics.

00;46;02;11 - 00;46;27;04
Unknown
I mean, if I think, you know, if there's one, we'll take away from this is, look, these projects are complicated. They're difficult. You've got to put the time, the effort, the resources and the money into them to get them right. Because, you know, you don't want to end up with these contracts going south. In all the aftermath of what happens when they do go south, if that's just not a scenario that really anybody wants to be in.

00;46;27;04 - 00;46;47;07
Unknown
And I think if you can avoid that, you're really you're doing yourself some good service there because you know, as much as you know, my clients like me, they think they're happier when they don't have to talk to me. So yeah, so we're working our audience find you and engage with your content. Yeah. I mean, you know, easy for us to get a hold of.

00;46;47;07 - 00;47;12;07
Unknown
Me is TaftLaw.com. You can also, you know, look me up on YouTube. You can visit me on X or Twitter, TikTok and Instagram. The only thing I'd ask is don't visit me at home yet. My online profiles are the way to go. Yeah. Awesome. Marcus. I look forward to talking some more and wish the best.

00;47;12;07 - 00;47;30;09
Unknown
And for those who are listening that are lawyers or aspiring lawyers, what a cool niche do to be in. And I think I don't think there's a lot of lawyers to specialize in what you do. Marcus And I encourage people to look into this as a profession. Yeah, it's a lot of fun stuff. I really appreciate the opportunity.

00;47;30;09 - 00;47;36;00
Unknown
AV Great talking to you. And let's keep the conversation going. Absolutely. Thanks, Mark. Thank you.