Key Subscription Provisions for an Oracle Fusion HCM Negotiation

While many projects were paused in 2020, there was no escaping the need for an HCM system.  Remote work, hiring, layoffs or furloughs, benefits, work life balance, and workforce management all became more important than ever.

Natively built for the cloud, Oracle Fusion HCM connects human resource processes spanning workforce planning, recruiting, global HR, talent management, learning, work life solutions, time tracking, and payroll.  The solution, similar to Workday and SAP SuccessFactors, has been gaining in popularity.

If you are considering Oracle and you begin to evaluate an Oracle Fusion HCM proposal, it is important that you insist on full pricing transparency.  This will enable you to conduct your due diligence, build out some financial modeling, and evaluate different pricing scenarios.  While there are many different commercial terms to negotiate, below are three key terms to review.

1. Business Metrics

For the Oracle Fusion HCM base cloud service and additional HCM options, the metrics Oracle uses in their price book are Hosted Employee and Hosted Named User.  A Hosted Employee is defined as (i) all of your full-time, part-time, temporary employees, and (ii) all of your agents, contractors and consultants where such agents, contractors and consultants have access to, use of, or are tracked by, the programs.

A Hosted Named User is as an individual authorized by you to access the hosted service, regardless of whether the individual is actively accessing the hosted service at any given time.  Hosted Named Users may include business network administrators, endorsing trading partners and participating trading partners.

In our experience reviewing many Oracle proposals, the first issue we have seen is that Oracle sometimes uses different nomenclature for the metrics – such as FSE, FTE, and Number of Users.  This can make things a bit confusing for customers.  But in reality, it is very simple.

All you need to understand is whether the metric is counted on an enterprise level or on an actual user basis.  For example, Hosted Employee, FSE, and FTE are enterprise metrics.  This means your entire number of employees must be counted in determining the license quantity for this metric.  The rationale is that solutions using this metric provide value across your entire enterprise, such as the Strategic Workforce Planning solution.

Hosted Named User counts, in contrast, apply to only those users in your organization who will have log in rights to the solution, such as Time and Labor for time tracking.

We typically see the FSE (Full-Service Equivalent) or FTE (Full-Time Equivalent) metrics used when Oracle believes they are competing against Workday, since FSE is the metric Workday uses.  The key is to ensure you understand exactly how Oracle is defining these metrics in your proposal and how they are counted, as this will enable you to fully understand the financial implications of their proposal and do an accurate comparison to any other solution you may be evaluating.

2. Discounting

One challenge customers face is that Oracle prices and discounts differently within each pillar of their cloud solutions.  For HCM, this would include the total list price of the HCM solutions in your bill of materials, or BOM.  If you are primarily looking to subscribe to Oracle’s ERP, EPM, and CX solutions and only include HCM base cloud service without any options, your HCM solution discount will typically be significantly less than the discounts on the other solutions in your BOM.  This makes it seem as though you have to negotiate with multiple departments within Oracle and this has been a source of frustration for many customers.

The other challenge facing customers is getting Oracle to provide pricing and discounting transparency.  Oracle typically will only provide a monthly and annual net cost without any list price or discount stated.  Sometimes Oracle will not even provide line-item pricing but will propose a bundled price for a group of solutions.  This is a very transactional approach which benefits Oracle.

Oracle does not want you to be able to compare discount levels in your current deal with discounts they may propose on future deals.  This means that the less transparency they provide to you, the less knowledge you have about Oracle discounting, and the greater leverage Oracle has in downstream negotiations.

Additionally, while Oracle positions that the total list price is what drives the level of discounting they can provide, this is not entirely true.  What matters more is your negotiation leverage, as we have seen high list price deals with lower discounting than some smaller list price deals.

3. Renewal Term Price Protections

Customers need to factor in not only the upfront pricing for the initial term, but also the renewal term price protections.  Oracle is known for ‘buying the business’ because of their history of acquisitions and their willingness to discount more heavily to win a deal over a competitor.  Just keep in mind that Oracle is very cognizant of achieving a certain growth percentage on annual subscriptions from year to year.

While Oracle may offer attractive pricing for your initial term, they will look to make it all back (and more) come renewal time, when you are already fully deployed and it is not practical to switch to a different solution.  We recommend evaluating Oracle pricing over at least a 10-year horizon.

Be sure you clearly understand how renewal term price protections work in your deal structure.  This means reviewing the percentage increase, how often the increase will be calculated, and any conditional terms.  It is standard practice for Oracle to include language stating that any renewal term price protections are conditioned on the customer renewing for at least the same modules and quantities, otherwise the protections do not apply and are subject to negotiation.

To be clear, you can always increase your modules and quantities without impact to your renewal term pricing protections.  But if you wish to remove a module or need to reduce quantities as a result of a business downturn or for any other reason, Oracle reserves the right to re-price your cloud subscription using then-current list prices and applying their then-current standard volume discounting which is not very competitive.

These three material pricing terms represent some of the high priority terms to negotiate with Oracle.  However, there are many other commercial terms to consider as part of any Oracle negotiation.

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