CONTRACTS AND WARRANTIES

BSMH 3093 HUMAN RESOURCE INFORMATION SYSTEM

Objectives
At the end of this topic, you should be able to:
discuss the role of contracts; explain the service contracts; discuss the financial options in service contracts; and determine the provisions for an adequate software warranty.

The reasons why we need a good contract are (Meade, 2003)

It tells what the software is going to do It specifies what the product is going to cost It spells out the support that the client will receive It spells out any exceptions or special requests the client may have made

It gives the client a basis for a formal grievance

Contracts
Contract is a formal written agreement between two people/organizations on certain business agreements (Ceriello & Freeman, 1991). It is a binding agreement between two or more parties for performing, or refraining from performing, some specified act (s) in exchange for lawful consideration.

The main role of contracts

it clarifies responsibilities and limits for individuals or entities involved in a business relationships. some rules apply:
1. the contract cannot encompass all eventualities, but it should cover the major risks involved and clearly set forth the intentions of both parties; 2. the contract should be written, executed and filed; and 3. the project team should use legal counsel in developing and negotiating contracts because of the high value of the software purchase and the even higher cost of failure.

Types of clauses in contracts

General clauses

indicate the overall business relationship and cover the objectives, responsibilities, and limits of the project.

specific clauses

Software Contracts
A typical software contract must deal with a variety of interrelated issues such as the quality of the system, timeliness of delivery, the effort and cost of the project, the contract payment and the post delivery of software support. It is not an actual purchase of software but more to the license of using a certain number of copies at a certain number of locations.

Software Contracts: Key negotiating points

1. Defining clearly the functions of software, 2. Defining the operating characteristics of software, 3. Software vendors may not have the required assets and resources, and 4. The risks to consider when buying HRIS software (for example, non-performance software package, vendor solvency, infringement, progress payments, product quality, excessive resource usage, and staff qualifications.

Issues relating to HRIS contracts

Negotiating with the consultants Financial options in service contracts a) Fixed-price contract b) Time-and-materials contract c) Cost reimbursement contract d) Retainer contract

Fixed-price contract
the simplest and classic contract The consultant/service provider and client (project team) must agree on the price to be paid for the HRIS project. This price cannot be changed unless the scope of work is changed, and the consultant/service provider is entitled to payment only if the contract is completed successfully

Time-and-materials contract
The client (project team) and consultant/service provider agree on the amount to be paid for HRIS services. The total amount paid depends on the number of hours worked plus material at cost.
fees-and-expenses contract.

used when it is not possible to estimate the extent or duration of the work or to anticipate the total costs.

Cost reimbursement contract

Has some characteristics similar to both timeand-materials and fixed-price contracts The consultant/service provider is reimbursed for the costs it actually incurs. A total cost estimate will be determined at the beginning of the cost-reimbursement contract, to allow the project team to budget for the HRIS project and to establish a maximum amount for reimbursement.

Retainer contract
used when the project duration exceeds six month. The consultant/service provider will fix number of days per month in order to charge a lower rate over the period. The project team needs to guarantee that the consultant /service provider will remain on the project throughout the period.

Figure 5.1 Factors

Factors in choosing a financial arrangement for consulting services

High Retainer Project Uncertainty Fixed Price Low Low Cost Reimbursem ent Time and Materials Medium Risk High

Warranties
Refers to a contract that protects the client in the event of certain types of problems, defects, or deficiencies in the product or service provided. describes the conditions under, and period during, which the vendor will repair, replace, or compensate for the defective item without cost to the client.

Some of the provisions for a good software warranty (Ceriello & Freeman, 1991, p.246)
The vendor agrees to replace defective disks or tapes on which their software is shipped. The vendor guarantees to fix any bugs that occur within a given time period. The vendor will make updates and revisions available at nominal or no cost. The vendor states in writing that the HRIS software will run in the clients computing environment. The vendor warrants that the software conforms to the vendors own specifications for performance criteria, such as run time, response time, and maximum downtime.

QUESTIONS???