INFORMATION TECHNOLOGY PROJECTS FOR CUSTOMERS

As a customer planning for and implementing an information technology project, there are a number of issues, which should be considered and implemented to ensure that the project is successfully completed.

• Your choice of supplier is an important one and should not be rushed into.
• Consider checking reference sites where the supplier has successfully implemented a similar system.
• Check the availability of the supplier's personnel within your required implementation period.
• Prepare an initial written brief (allow for increased capacity).
• Ask for advice in writing from the Supplier as to the suitability of the proposed system as compared to your brief and your project
• If you make it clear that you are relying on the supplier's expertise in choosing a system, you may have greater remedies available should such a system later be found to be inadequate.
• A letter should be sent early in the negotiation process stating that there is no contract unless signed by the Managing Director by both parties.
• All negotiations should be confirmed in writing to ensure that you have a documented history of the representations made by the supplier

• A decision will have to be made as to whether the project will be completed for a fixed or variable price.
• A fixed price project has the advantage of a pre-arranged contract price but may see the workmanship deteriorate as the project is rushed to completion and or the supplier never complete the project before it runs out of resources.
• A variable price project may encourage the supplier to produce a more consistent workflow but needs to be carefully supervised with completion dates for interim stages being established and adhered to. Calculation Considerations:
  • Usually project costing involves multiple calculations and should be expressed in a schedule to the supply agreement
  • On what notice the supplier can increase its fees?
  • Are the fees exclusive of taxes, duties, fees or other government levies or charges?
  • What interest is to be paid on overdue amounts? Will the supplier suspend further services or its remaining obligations they are not paid on time?

The supply agreement is the foundation of the rights and responsibilities of both parties. It is an important document, which should be carefully drafted on the assumption that the project may fall into dispute.

Whether the supplier is providing hardware, software, or both they will most likely attempt to limit their liability and warranties to the extent allowed by the law.

• If your project exceeds $40,000.00 in value, the supplier may subject to the common law completely limit their liability and offer no warranties as the transaction will not fall under the provisions of the Trade Practices Act (Cth) 1974 and similar state legislation.
• It should be requested that the supplier warrant that the project will comply with your requirements, which should be detailed in a schedule to the Supply Agreement.

The Agreement should be reinforced by a written record of all representations made by the supplier. If possible, you should obtain the supplier's written confirmation that the representations were made. For example, it may be appropriate for minutes of all meetings to be prepared and signed by all parties present to confirm any discussions, which took place.

With an adequate record of the supplier's representations having been kept, the supplier will be less likely to walk away from the project should the implementation not proceed smoothly as they will not be able to rely upon their limitation of liability and warranty terms for complete protection from litigation.

During the course of the implementation of the project and even in the negotiation stages, the supplier is likely to be given access to information, which needs to be treated in confidence. It may also be considered that the concepts involved in the project should also be treated in confidence if their disclosure would benefit your competition by assisting them to develop a similar project.

The supply agreement should contain clauses, which deal with confidential information, including a detailed definition of what information is to be considered confidential. In addition, a Confidentiality Agreement or Deed should be signed by the supplier and all its staff and contractors to ensure that all parties are aware of their obligations.

Although legal remedies are available in the case of a breach of confidentiality, your business may be irreparably damaged as a result of disclosure of confidential information.

If intellectual property is created in the course of the project, the intellectual property will be owned by the supplier, unless the supplier is an employee of your company, until it is assigned in writing to you.

If you want to be the intellectual property owner, an intellectual property assignment deed should be prepared and signed by the supplier. Such an assignment of intellectual property may be included in the Supply Agreement.

As the intellectual property owner, you will be able to control the licensing of same to any third parties and you will be able to limit, to a certain extent, the supplier's re-use of the principals incorporated in your project.

You should ensure that appropriate indemnities are sought from the supplier as to their ownership of the intellectual property at the time of assignment. You should insist upon the supplier granting you indemnity from any litigation which may arise from a third party claiming that your project infringes their pre-existing intellectual property rights. However, it should be noted that such an indemnity will only be useful to you if the supplier is in a financial position to pay any damages awarded against you.

If your project involves the licensing of software from the supplier, you should consider the requirement for continued access to source code to allow for continued development and modification of the software in the event that the supplier ceases to trade, for example as a result of liquidation proceedings.

Usually, a supplier will not agree to supply a copy of the software source code unless it ceases to trade. The problem that you may face in that situation is that the source code may be lost or given to another party. To ensure that you will have guaranteed access to the source code, you should consider requesting that a copy of the source code, which is regularly updated, is held by an independent escrow agent.

The escrow agreement should detail the requirement that the supplier supply updated versions of the source code to the escrow agent at regular intervals and should list the circumstances which will allow you to gain access to the source code.

If you are licensing software from the supplier, a written licensing agreement should be prepared. You need to consider, amongst other things, whether you need a licence, which is:

• Exclusive/non-exclusive; or
• Transferable/non-transferable

The supplier's licensing fees will most likely be reduced if they can license the software to other customers and if the licences are not transferable to other parties.

The less restrictive the terms of the license are, the fewer intellectual property rights you will be able to enforce.

When a bug, breakdown or error occurs any party suffering loss and damage will be looking for the reasons why or how the fault occurred and compensation from the supplier. Well drafted contractual documentation and a comprehensive record of all negotiations will be of great assistance if the blame for an incident is placed on you.

Typical causes of action may arise under :

• a breach of contract
• the Trade Practices Act (1974) (Cth) ( “the TPA” ) and other relevant consumer legislation such as the Goods Act (Vic) 1958 ( “the Goods Act” )
• tort

It is not all bad news for the supplier, at common law there is a duty on a party to minimise the loss suffered as a result of a breach of contract. That obligation may extend as far as co-operating with the other party to resolve problems and this is often overlooked in heat of the dispute. One Judge has said: “Trust in the infallibility of a computer is hardly a defence when the opportunity to avoid the error is apparent”.

• No written agreement
• No written agreed specifications
• No record of negotiations
• No ownership or control over supplied Intellectual Property
• Insufficient rights to deal with supplied Intellectual Property
• No variation control/costing.
• Too many modifications.
• Inadequate methodologies for implementation, documentation and training
• No backup implementation plan

Written agreements are prudent, invaluable and provide a strong base for project management.

Remember, whilst you can resort to legal remedies should the project run into trouble it is obviously best to use common sense and proper project management to avoid any such dispute.

Further, if a dispute does occur you are required to mitigate your losses and the monetary damages recovered may not adequately compensate you for the expense and inconvenience caused by the delay or failure of the project.

STEVE WHITE
WHITE SW COMPUTER LAW
AUGUST 1998

www.computerlaw.com.au

© White SW Computer Law 1998

This article is a guide only and should not be used as a substitute for proper legal advice, readers should make their own enquiries and seek appropriate legal advice.