Key Points

  • In its 10th annual survey of  most frequently negotiated terms and conditions the International Association for Contract and Commercial Management (IACCM) concluded that the focus of contract negotiations is damaging the value that can be achieved from business relationships.

  • IACCM found that contract negotiations are dominated by negotiations which focus on terms which deal with the allocation of risk and consequences of failure when the focus of negotiations should be on terms which would be more productive in supporting successful relationships.

  • Although terms which deal with the allocation of risk and the consequences of failure should never be overlooked when negotiating an IT contract, an organisation should ensure that the negotiation of these terms does not distract it from giving adequate attention and time to negotiating terms which will best support a successful relationship.

  • An organisation should review its existing IT contracts with its suppliers or customers and its standard form IT contracts (if any) to ensure that they include all of the terms necessary to support a successful relationship.

  • TechComm Legal has developed a Successful IT Contracts Checklist to assist purchasers of IT products and services to enter into successful IT contracts with suppliers.

Introduction

In its 10th annual survey of most frequently negotiated terms and conditions the International Association for Contract and Commercial Management (IACCM) concluded that the focus of contract negotiations is damaging the value that can be achieved from business relationships.  This conclusion was reached in relation to contracts for the supply of IT products and services as well as to contracts for the supply of other products and services.
 
Not unsurprising IACCM found that contract negotiations are dominated by negotiations which focus on terms which deal with the allocation of risk and consequences of failure such as limitations of liability, indemnification, price and payment.  IACCM suggested that the focus of negotiations should be on terms which would be more productive in supporting successful relationships such as scope and goals, change procedures, communications and reporting.

Supporting Successful Relationships

In its survey IACCM identified a number of terms as being more productive in supporting successful IT and other contractual relationships.  The survey ranked these terms in order of priority from more productive to less productive (highest to lowest) set out below.

  1. Change management – An IT contract should clearly set out change management and variation procedures.  Weak change management procedures often cause problems with the supply of IT products and services.

  2. Scope and goals – An IT contract should clearly specify the scope and goals to be achieved in relation to the supply of the IT products or services.  The scope and goals should also be checked to ensure that they are aligned.

  3. Parties’ responsibilities – An IT contract should clearly identify the extent to which each of the parties is responsible for performing the tasks which need to be completed for the supply of the IT products or services.  An IT contract should also clearly set out the responsibilities of the parties in respect of the governance and management of their relationship.

  4. Communications and reporting – The procedures for communications between the parties should be clearly set out in an IT contract.  The matters which are required to be reported by the supplier to the customer under an IT contract should also be clearly defined.

  5. Performance, guarantees and undertakings –  The measures which will be used to measure a supplier’s performance should be clearly set out in an IT contract.  Consideration should also be given as to whether any performance guarantee or financial undertaking is required to be provided by the supplier in respect of an IT contract.

  6. Limitation of liability – The extent to which the liability of the parties is to be limited or excluded needs to be clearly specified in an IT contract.  Any limitation of liability should identify the types of liability covered and the limit that applies in respect of each such liability.

  7. Delivery and acceptance – An IT contract should clearly set out the procedures for the delivery of the IT products or services and the acceptance test procedures and criteria.  IACCM found that the number one cause of contractual disputes is disagreements over delivery or acceptance under a contract.

  8. Dispute resolution – An IT contract should include a dispute resolution procedure which facilitates the resolution of any dispute efficiently and cost effectively by representatives of each of the parties, expert determination, mediation and/or arbitration.  A party should not be able to commence legal proceedings to resolve a dispute without first seeking to have the dispute resolved in accordance with the dispute resolution procedure set out in the IT contract except where the party seeks urgent interlocutory relief.

  9. Service levels and  warranties – It is important that the service levels for the supply of IT products and services are clearly specified in the IT contract together with warranties regarding compliance with the service levels including response and resolution times where applicable.

  10. Charges and adjustment of charges – The charges for the supply of IT products or services need to be clearly specified in an IT contract.  An IT contract  should also clearly specify the circumstances in which the charges may be adjusted and the mechanism for determining any such adjustment.

  11. Audits and benchmarking – The right of a customer to access the records and premises of the supplier for the purpose of auditing their performance under an IT contract should be clearly stated.  Any process for benchmarking the charges of the supplier also needs to be clearly set out in an IT contract.

  12. Indemnification – The scope of any indemnity should be clearly specified in an IT contract.  An indemnity should identify the persons indemnified, types of loss or damage covered and any liability limits or exclusions which are applicable.

  13. Intellectual property – The arrangements for the ownership and licensing of intellectual property rights in contract material developed under an IT contract needs to be clearly set out in the IT contract.  Similarly, the arrangements for the licensing of intellectual property rights in pre-existing materials used in connection with an IT contract also needs to be clearly set out in the IT contract.

  14. Payment – The payment arrangements should be clearly specified in an IT contract including the method and timing for the making of payment by the customer to the supplier.

  15. Information access and management – An  IT contract should clearly state the requirements for the handling by each party of the other party’s information and data in connection with the IT contract. It is also important to specify whether these obligations survive the expiry or termination of the IT contract.

  16. Business continuity and disaster recovery –  Consideration should be given as to whether business continuity and disaster recovery plans are required in respect of the supply of IT products or services under an IT contract.  If required, a business continuity plan should specify the arrangements for the continued supply of the IT products or services in the event of a disaster.  Similarly, if required, a disaster recovery plan should specify the arrangements for preparing for a resumption in the supply of the IT products or services in the event of a disaster.

  17. Applicable law and jurisdiction – An IT contract should specify the applicable law by nominating the laws of a particular jurisdiction as being the governing law.  An IT contract should also specify the courts which have jurisdiction in the event of a dispute arising between the parties.

  18. Confidential information and non-disclosure – An IT contract should clearly define the information which constitutes the confidential information of each party and specify how such information is required to be handled.   An IT contract should also clearly specify the circumstances in which the confidential information of a party may be used or disclosed by the other party.

  19. Warranties – The warranties required to be provided by a supplier of IT products or services should be clearly stated in an IT contract.  Consideration should also be given as to whether the supplier is required to pass through any manufacturer’s warranty for any IT products.  In addition, an IT contract should also clearly specify the duration of these warranties and the procedure for the making of a warranty claim by the customer.

  20. Assignment and transfer – Whether a party has a right to transfer any of its rights or obligations under an IT contract should be clearly stated in the IT contract.  If a party does have the right to transfer any of its rights or obligations then the circumstances in which such a right may be exercised should  also be clearly stated in the IT contract.

If you require any further information in relation to this Client Alert, or any assistance to negotiate or review an IT contract, please do not hesitate to contact us.
Please note that the information contained in this Client Alert is provided for information purposes only and is not intended to be relied upon as legal advice for any particular purpose.  You should seek your own independent legal advice for your specific circumstances.
 
Last Updated: 28 February 2017