Understanding Construction Software Pricing

By Sheldon Needle

When vendors first contact buying prospects, the last thing they want to talk about is cost because that is the most likely criteria to scare off potential customers. So if the prospect insists on some kind of a dollar amount, they will usually give a number which is only half, or even one-third of the eventual price.

I’ve identified two types of costs – upfront and hidden. Both types of cost make up the true cost of construction software purchase.

Upfront Costs include:

• Software applications price
• Data conversion (significant and can be high risk)
• Consulting fees for preliminary evaluations
• Cost of 3rd party applications
• Cost of custom additions like nonstandard reports
• Annual maintenance costs
• Travel and hotel costs for trainers
• Training costs
• Scope change contingencies (user brings up new requirements after contract is signed)
• Licensing costs for underlying database (e.g. Oracle licensing costs for Oracle based software).

This list represents the easy stuff. Now let’s look at the really tricky aspects of known and unknown pricing. We’ll call these hidden costs:

Late schedule pricing – if the user does not deliver what is promised on time, they may be liable for additional trainer or implementation costs due to time delays.

Unknown but known surprises – some construction accounting software vendors know there are certain issues that come up again and again during implementation but fail to incorporate those into the contract to keep costs down. You may then be hit with added expense during implementation with no options in order to keep the project moving.

Some of these unknowns may have to do with nonstandard reports or custom changes to meet user needs that were not spelled out clearly enough in the contract.

Lower quality trainers than expected – a vendor may send out someone not as experienced as they initially indicated and your project will be delayed resulting in additional “soft” costs of your staff having to wrestle with unexpected delays on setup and or training.

The cost of great software your staff cannot use effectively – the greatest cost of all since you have spent your money and may get little or nothing in return. It is not uncommon for smaller or medium sized companies to choose a very powerful system that they have neither the people nor time to utilize properly. Net gain may be nothing.

Maintenance costs which provide little or nothing – typically construction software vendors will charge 18-22% of the initial purchase price of the software. This covers you for routine support and software upgrades. But suppose you rarely, or never, use support? Or suppose the vendor stops investing in making any significant improvements to the system? Essentially you are then paying for maintenance costs and getting little or nothing in return.

Another twist is when some vendors use the current retail cost of the software to compute your maintenance costs. This means that if you purchased a system 5 years ago for $20K, and the same package now sells for $30K, your maintenance cost will be based on a percentage of the $30K!

Conclusion
There are many ways you can be surprised by initial and final cost expectations for a new integrated contractor accounting system. Keep in mind that the written contract is really just a jumping off point and that your actual hard and software costs may vary greatly. You may want to hire an attorney skilled at reviewing software contracts to reduce your risk. It may also pay to hire an experienced consultant to help you navigate the cost pitfalls of selecting a construction software package.

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