Canadian Public Sector Agency Avoids RISE with SAP Lock-In Through Modular Contract Negotiation
Industry: Government/Public Sector | Country: Canada | Employees: 25,000
Background
A large Canadian public sector agency was embarking on a digital transformation of its core ERP systems.
The agency had been running SAP ECC (ERP Central Component) for years and was evaluating a move to SAP S/4HANA to modernize its financial and administrative processes. SAP’s sales team aggressively promoted RISE with SAP, a bundled cloud offering, as the fastest route to S/4HANA.
RISE with SAP promised a simplified, all-in-one subscription covering software, infrastructure (cloud hosting), and managed services under a single contract.
Given the government’s cloud-first initiative, the agency initially saw RISE as an appealing “turnkey” solution to shift from on-premise to a cloud-based ERP in one package.
However, as the agency’s IT and procurement leaders dug deeper, they grew concerned about the implications of the RISE contract. Public sector organizations are particularly cautious about long-term vendor commitments due to strict procurement policies and the need for transparency and flexibility.
The agency’s due diligence revealed that accepting SAP’s RISE bundle could introduce significant vendor lock-in and reduce its control over key aspects of the ERP environment.
With ~25,000 employees and numerous critical services relying on SAP, the agency needed to ensure any new agreement would not compromise its autonomy or budgetary control in the coming years. This set the stage for carefully examining how to structure the S/4HANA migration on the agency’s terms.
Challenge: RISE Contract Lock-In Risks
RISE with SAP is a multi-year subscription that fundamentally changes the traditional licensing model.
Under a RISE contract, the customer gives up existing perpetual licenses and instead rents the software. All components—S/4HANA software licenses, the cloud infrastructure, database, and basic support services- are bundled together. The agency recognized several challenges with this approach:
- Loss of License Ownership: By moving to a subscription, the agency would surrender its perpetual ERP licenses (which it had invested in over decades) and become a “renter” of SAP software. This meant losing the right to use the software if the subscription ended, and forfeiting the flexibility to pause or seek third-party support for licenses (a flexibility that public entities value to control costs). Essentially, SAP would become the landlord of the agency’s ERP system, with the power to “raise the rent” at renewal time.
- All-or-Nothing Bundle: The RISE bundle tied software and services inextricably together. If the agency later became dissatisfied with any element—cloud hosting performance, service quality, or the cost structure—it couldn’t easily change that single component. Exiting or modifying any part of the deal (for example, switching cloud providers or dropping a service) would be contractually difficult without terminating the entire RISE agreement. This lack of modularity was at odds with the agency’s procurement best practices, which favor modular contracting to ensure competition and avoid single-vendor dependency.
- Limited Cloud Control: Although RISE allows the choice of a preferred hyperscaler (AWS, Azure, etc.), the cloud contract remains in SAP’s name, not the customer’s. That worried the agency – it meant they wouldn’t have a direct relationship with, or full control over, the cloud infrastructure. Adjusting service levels, negotiating pricing for cloud resources, or ensuring compliance with Canadian data residency requirements could become more complicated under SAP’s intermediary control. The agency’s IT department wanted the ability to deal directly with cloud providers to fine-tune infrastructure needs (common in the public sector to meet data sovereignty rules), which RISE would preclude.
- Multi-Year Commitment & Rigid Terms: RISE contracts typically span 3 to 5 years and lock in a fixed number of users and resources for the entire term. The agency was uncomfortable committing to a fixed capacity (measured in Full User Equivalents and cloud resources) without the right to reduce it if their needs changed. Government programs and budgets can fluctuate, and being stuck overpaying for unused capacity (with no mid-term reduction allowed) would waste taxpayer money. SAP’s standard terms would allow increases (scaling up) but not decreases until renewal, which the agency viewed as a one-sided risk. Standard RISE renewals had no price caps, meaning SAP could impose significant cost hikes after the initial term – a budgetary wildcard the agency could not accept without negotiation.
- Unclear Exit Strategy: Perhaps most troubling, the agency noted that SAP had not articulated a clear exit process if a RISE contract ended. In a traditional model, if they owned licenses, they could keep running the system (or at least read the data) even after maintenance expiry. Under RISE, if they chose not to renew, they risked losing access to their production ERP instantly once the contract lapsed, unless they transitioned off in time. Not having guaranteed access to critical systems and data after subscription end was unacceptable for a public sector entity. They required assurance that they could extract their data and continue operations on another platform if needed – a contingency RISE didn’t readily provide (beyond basic data export, which might not be sufficient for a live system handover)e3mag.com.
In sum, the vendor lock-in inherent in RISE was the central challenge. Analysts and advisors had warned that “cloud for rent” models like RISE often primarily benefit the vendor, not the customer.
The agency’s leadership realized that signing the RISE deal as-is could compromise their long-term flexibility, financial control, and operational continuity. The task, therefore, was to find a way to still move forward with S/4HANA and cloud migration, but without falling into these lock-in traps.
Solution: Modular Contract Negotiation
The agency pursued a modular contract strategy to address the risks instead of accepting a monolithic RISE agreement. This strategy involved unbundling the ERP transformation into separate components and negotiating each on favorable terms.
Key steps in their approach were:
- Retaining Perpetual Licensing: The agency negotiated to keep ownership of its SAP licenses for flexibility rather than converting entirely to subscription. They evaluated SAP’s S/4HANA licensing alternatives outside of RISE – for example, purchasing a perpetual S/4HANA enterprise license (on-premise style) or converting existing ECC licenses to S/4HANA under a contract conversion program, while continuing to pay standard annual maintenance. By doing so, the agency ensured that even in a cloud deployment, they would have the perpetual rights to the software. This preserved an exit option: if they wanted to switch support providers or bring the system back on-premises in the future, they could, since they’d still “own” the software usage rights. SAP initially pushed back, emphasizing RISE’s all-inclusive nature, but the agency clarified that surrendering their perpetual rights was a non-starter. Citing SAP’s customers’ cautionary experiences, they underscored the need for an exit plan and leveraged that SAP still technically allowed on-premise S/4HANA licensing for private cloud deployments. Ultimately, SAP agreed to a custom arrangement: the agency would license S/4HANA via a traditional model (user-based licensing with a conversion credit for their existing ERP licenses) instead of via RISE’s FUE subscription metric. This eliminated the “rental only” aspect of RISE.
- Separate Cloud Hosting Contract: The agency decided not to let SAP be the middleman for infrastructure. They ran a competitive procurement to select a cloud hosting provider (ultimately choosing a hyperscaler with a data center in Canada to meet residency requirements). The agency could satisfactorily negotiate pricing, SLAs, and data controls by contracting directly with the cloud provider. They also retained the flexibility to switch providers, which would have been difficult under RISE. SAP’s RISE offering would have bundled an equivalent cloud cost, likely with a markup and without direct transparency. Instead, by unbundling, the agency could potentially save costs and avoid the “one-size-fits-all” sizing that RISE includes. They carefully sized their cloud instances for current needs but also negotiated on-demand scalability and even the right to downsize if usage decreased – terms that mirrored typical cloud agreements but far exceeded the flexibility of a RISE contract.
- Third-Party Implementation and Support Services: While RISE includes some SAP-provided basic technical services and the convenience of SAP as the single point of contact, the agency took a best-of-breed approach for services. They hired an experienced systems integrator to handle the S/4HANA migration project and a separate provider for ongoing application management and support. By doing so, they avoided relying exclusively on SAP’s bundled services. During negotiation, this became a sticking point – SAP tried to package their own consulting services as part of the RISE deal. The agency instead carved out those services, bidding them out and obtaining better rates and service commitments. This modular services contracting also meant that if the support vendor underperformed, the agency could replace them without affecting the software license or hosting, again, avoiding entrenchment with any single vendor.
- Contractual Safeguards: The procurement and legal teams ensured strong protections in each contract. In the S/4HANA license agreement with SAP, they built in terms such as price caps on maintenance (to prevent steep increases in annual fees) and clauses confirming their rights to extract data and transition licenses in case of termination. In the cloud contract, they negotiated exit assistance and data portability clauses, so the agency’s data and systems could be smoothly migrated if they switched solutions in the future. They also insisted on the ability to run a transitional dual environment (old and new system) for a period without extra SAP charges, to ensure a safe cutover – something SAP granted via a contract addendum. While the agency didn’t take RISE’s single contract, they recreated the integrated outcome via multiple contracts, with checks and balances written into each.
Throughout this process, the agency leveraged timing and competitive leverage in negotiations. They engaged SAP at fiscal year-end when SAP was keen to close a deal, extracting additional discounts on S/4HANA licensing.
Simultaneously, showing SAP they had alternatives (like remaining on ECC with third-party support or shifting only parts of the workload to the cloud) gave them leverage. Eager not to lose a major public sector client, SAP ultimately offered a bespoke deal aligning with these modular demands.
Internally, the project was championed as a “best-value procurement”, aligning with public sector mandates to avoid vendor lock-in and ensure long-term value for money.
Outcome: Flexibility and Control Preserved
By avoiding a RISE with SAP lock-in, the Canadian agency achieved a far more flexible and controlled transformation:
- No Vendor Lock-In: The agency succeeded in preventing single-vendor dependency. It now has separate, modular software, hosting, and support contracts. If problems arise with any contract, the agency can address or replace that piece without unwinding its entire ERP operation. This modular setup keeps SAP accountable for the software license and standard support, while other partners handle operations, introducing healthy vendor competition. The agency mitigated the “vendor lock-in trap” by maintaining alternatives and leverage. In the words of the CIO, they “can now modernize on our terms, not SAP’s terms,” ensuring the system evolves as needed rather than being tied into SAP’s all-encompassing deal.
- Cost Efficiency and Predictability: The negotiated S/4HANA license and maintenance costs, combined with the direct cloud contract and third-party services, proved more cost-effective than SAP’s original RISE quote. The agency’s analysis showed that RISE’s bundled price carried a premium (for example, SAP’s RISE offer was roughly 20% higher over 5 years than a do-it-yourself equivalent). By unbundling, they avoided that premium and gained transparency. Moreover, the contracts include pricing safeguards – the SAP maintenance fee increases are capped at a low single-digit percentage per year, and the cloud provider is locked in discounted rates due to the multi-year government contract. This means the agency’s budgeting for ERP operations is now more predictable, without fear of an unexpectedly large jump at the first renewal (a known risk if they had gone with a standard RISE deal lacking renewal caps).
- Direct Control Over Cloud and Data: With a direct relationship to the cloud provider, the agency’s IT department has full control over environment sizing, performance tuning, and upgrade schedules (within the flexibility allowed by having a private S/4HANA instance). They can negotiate upgrades or migrations of the infrastructure independently. Data residency is guaranteed in Canada under its contract. Importantly, suppose that in the future, they need to switch to a different infrastructure (say, move to a government-owned data center or another cloud for policy reasons). In that case, they can port their systems, since they are not locked into SAP’s internal cloud framework. And should they ever decide to discontinue S/4HANA, they retain the perpetual license rights to run an archived copy for data retention or to spin the system down gracefully, rather than facing a hard cutoff.
- Successful S/4HANA Go-Live and Modernized Operations: Using the chosen system integrator, the agency migrated to S/4HANA on the selected cloud within the projected timeline. The transition was smooth and, thanks to the dual-use period negotiated, they ran ECC and S/4HANA in parallel for several months to validate everything. The end-users have seen improved performance and new functionalities of S/4HANA. At the same time, the IT department notes that having direct visibility into the cloud operations has helped fine-tune the system (something that might have been slower if all tickets had to go through SAP in a RISE model). The agency reports meeting its digital transformation objectives without sacrificing governance principles. In post-mortem reviews, stakeholders praised the decision to forgo a simplistic one-stop deal and instead do the “hard work” of modular negotiation. This case has since become an example for other government organizations in Canada on how to engage with SAP strategically, achieving modernization while avoiding vendor lock-in and maintaining control over one’s IT destiny.
