Key SAP Contract Terms CIOs Must Negotiate
SAP license and cloud agreements contain terms that can impact costs and flexibility for years.
This article highlights the critical contract clauses CIOs and procurement heads should negotiate in any SAP deal.
From limiting annual price increases to addressing indirect access usage, these terms can spell the difference between a budget-friendly partnership and unexpected cost escalations.
By proactively negotiating pricing, flexibility, and compliance clauses, enterprises can protect themselves against SAP’s common “gotchas” in contracts.
Multi-Year Commitments vs. Flexibility
SAP often pushes for long contract terms (multi-year deals), especially with cloud subscriptions and enterprise agreements.
While a multi-year commitment might come with discounts, it can limit your flexibility:
- Avoid Lock-In: Negotiate the ability to adjust or exit if business needs change. For example, opt for a 3-year deal instead of 5, or include a mid-term checkpoint/opt-out clause in a longer contract. If SAP won’t allow easy termination, at least ensure you can reduce licenses or services at renewal points without penalties.
- Protect Against Auto-Renewals: Ensure the contract doesn’t auto-renew for extended periods without providing an opportunity to renegotiate. You want the opportunity to revisit terms regularly (e.g., every three years) rather than having them roll into extensions by default.
The goal is to enjoy SAP’s offerings without feeling handcuffed. Flexibility clauses ensure you’re not stuck in a deal that no longer fits your strategy.
Read Cutting SAP Maintenance Costs: Negotiation Strategies for Support Contracts.
Capping Price Increases and Fees
Price protections are critical in SAP contracts:
- Cap Maintenance/Subscription Escalation: Standard SAP contracts typically include annual support or subscription fee increases (approximately 3% per year, often tied to inflation). Insist on a cap – for instance, “fees shall not increase by more than 2% annually,” or negotiate a fixed fee for a certain period. This eliminates the surprise of steep cost jumps over time.
- Avoid Uncapped Indexing: If SAP proposes tying fees to an inflation index (CPI), include a maximum cap. For example, CPI-based increases are capped at 3% in any given year. This prevents runaway costs in high-inflation scenarios and provides budget predictability.
By setting these caps, you remove the risk of unpredictable, compounding price hikes in the later years of your contract.
License Exchange and Shelfware Clauses
Over time, your needs will change – some licenses may become shelfware. It’s wise to build in license flexibility:
- Exchange/Retirement Rights: Negotiate a clause that lets you swap or retire unused licenses instead of paying maintenance on shelfware. For example, if you bought licenses for a module you no longer use, you should be able to trade that value toward something else or drop those licenses entirely at a certain point. This way, you’re not stuck paying for something you don’t use (and its annual support).
Planning for license lifecycle changes ensures you won’t be trapped with unused, costly licenses. It also encourages SAP to work with you on value realignment rather than billing shelfware.
Indirect Access and Compliance Terms
One notorious contract pitfall is indirect access – when third-party systems or interfaces indirectly use SAP data, potentially triggering additional fees:
- Clarify Indirect Use Policy: Define what constitutes indirect use for your scenario in the contract. SAP’s Digital Access model (which licenses certain documents, such as sales orders, for indirect usage) can be a solution – you might negotiate a fixed number of documents licensed upfront at a predetermined price. The goal is to quantify indirect use costs so you don’t face an unknown liability later.
- No Double Dipping: Ensure the contract states that properly licensed direct users won’t cause indirect licensing charges for using external systems. If your employees with SAP user licenses access SAP via a third-party tool, you shouldn’t be charged extra. List out known integrations and confirm in writing that these are covered under your license grant.
Addressing indirect access proactively in the contract can prevent costly disputes down the line. It turns an uncertain risk into a defined (negotiable) part of your agreement.
Recommendations
- Engage Legal/Experts: Always have experienced legal or licensing consultants review SAP contracts, with a focus on these key terms. They can often suggest protective language you might not think of.
- Negotiate Before Signing: Your leverage is highest before you sign. Don’t hesitate to push back on contract language during negotiation – SAP expects it from savvy customers.
- Prioritize Must-Haves: Decide which clauses (price caps, flex rights, indirect use clarity, etc.) are non-negotiable for you and hold your ground on those. You may trade on less critical points, but protect what truly matters to your business.
- Document All Promises: If SAP representatives have made promises (e.g., “We’ll allow you to swap licenses later” or “No charge for that interface”), get them written into the contract. If they are not in writing, they don’t exist.
- Stay Educated: Learn from others. Leverage SAP user groups or industry forums to find out what terms similar companies have negotiated. If a peer receives a price increase cap or a favorable clause, you can also ask for it.
- Plan for Change: Assume your business will evolve over the contract term. Negotiate agreements that can adapt – whether through review points, exchange rights, or flexible capacity terms – so your SAP contract isn’t a straightjacket.
FAQ
Q: Why are multi-year SAP contracts risky?
A: Because your needs or SAP’s offerings might change over time. If locked in for too long, you may end up paying for unused services or miss out on better options. Building in flexibility (like adjustment or exit options) helps avoid that.
Q: Can we stop SAP from raising support fees every year?
A: You can negotiate a limit. You can often cap them (say at 2% annually) or even negotiate a short-term freeze on support fee hikes – but it must be written into the contract at the start.
Q: What is a license swap right in an SAP agreement?
A: A clause lets you exchange certain licenses for other licenses of equal value. For example, trading unused licenses for one SAP product for licenses of another product you need, without starting from scratch on pricing. It’s not standard – you must ask for it in your negotiations.
Q: How can we avoid “indirect access” surprises from SAP?
A: The best approach is to address it in the contract. For example, adopt SAP’s digital access licensing to fix the cost for indirect usage, or explicitly list third-party systems and agree on how they’re covered. This prevents surprise bills from third-party systems accessing SAP.
Q: If we move to RISE with SAP (cloud), what happens to our existing licenses?
A: Usually, SAP will credit some of your existing on-premise license value toward the RISE subscription. Be sure the contract clarifies what happens if you leave RISE later (e.g,. can you use your old perpetual licenses again, or are they terminated?). Getting that clarity upfront is important.
Q: What should we do if SAP resists adding these protections?
A: Stick to your guns on critical issues. Front-line SAP reps might say no, but higher executives could say yes – don’t be afraid to escalate. Use timing to your advantage (e.g., SAP’s quarter-end) and be ready to pause the deal if your must-haves aren’t met.
Q: Are there common clauses customers miss that we should look for?
A: For example, the audit clause (you can negotiate some audit terms), price holds for future purchases, and license transfer rights in case of divestitures are often overlooked. Consider any scenario where you’d hate to be stuck and include it in the contract.
Q: Should we involve our legal team or consultants in these negotiations?
A: Absolutely. SAP contracts are complex, and SAP’s negotiators do this every day. Having software licensing experts or legal counsel who are familiar with SAP’s typical terms can be a significant advantage. They know what to ask for and how to get it in writing – an upfront cost for expertise can prevent costly mistakes later.
Q: Are cloud deals easier to negotiate than on-prem?
A: SAP is eager to sell cloud subscriptions, so they may be more flexible (shorter terms, price caps, etc.) in cloud deals to win your business. However, even for on-premises, you should push for important terms – nothing is truly off-limits to negotiate. The worst SAP can say is no, and they often compromise to close the deal.
Q: Any final piece of advice for negotiating SAP contracts?
A: Don’t rush the process, and don’t assume any term is non-negotiable. The details you negotiate now will determine your costs and flexibility for years to come. Be patient, be thorough, and get everything in writing.
Read about our SAP Contract Negotiation Service.
