Expand and contract.
| Author | Warchus, John |
| Position | Application service providers - Brief Article |
Financial managers can no longer afford to ignore the possibilities offered by application service providers. But you have to read the small print in the contract, warns John Warchus
The announcement by Microsoft, Cable and Wireless and Compaq that they will become application service providers (ASPs) indicates that the ASP model can no longer be ignored by the financial business community. The ASP model is essentially a relationship where an IT services company manages and delivers applications or computer systems to business users remotely via the internet. But companies considering the ASP model should be careful -- there are technical and commercial risks.
As with any third-party service, it is important to focus on your key business requirements and to carry out site visits, client references and, usually, a competitive tendering process before concluding a contract. The formal tendering process is important as it will help you to judge rival ASP bids objectively. As part of the evaluation process, negotiate an initial trial period or a pre-contract benchmarking exercise to establish technical performance levels. Where you need to customise existing applications, ask the ASP to show project-management and development expertise.
As there is likely to be consolidation in the ASP sector, it is also important to check the ASP supplier's financial records. The human factor should also not be ignored: if an ASP is selected on the basis of key personnel, check how service levels will be maintained if they leave; or negotiate a contract that can be terminated if key people depart.
Ask whether the ASP model is correct for your business. The banking and finance sector, in particular, may not be suitable for the ASP model if success depends on bespoke or leading-edge software applications. Although ASP providers claim that they can customise standard software applications, the current state of the UK ASP market still seems to be based on the one-to-many basis, and bespoke software applications are the exception not the norm.
The recent High Court ruling in DMA v Baan is a reminder that a party may unwittingly enter into binding legal arrangements in the technology sector on the basis of verbal negotiations. When negotiating ASP supply contracts remember that English law holds that a binding contract exists once all the essential terms are agreed. It is therefore important to use a formula such as "subject to contract" until you are ready to...
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