Do your IT contracts work for you?

The most effective and successful IT contracts align the technical, operational and business needs of both customer and supplier, while leaving space for negotiation of the legal terms – agreeing on the latter shouldn’t mean capitulation on the former.

Often, the intricate detail of the contract negotiations diverts attention away from the documents (often found in the contract schedules, annexes and exhibits to the main contract) which focus on the technical, operational and pricing details, issues where alignment of the parties involved is vital for the whole contract to work properly.

IT contracts vary considerably in scale and range from a standard form or click-through set of terms and conditions for an off-the-shelf software product or Software as a Service (SaaS) offering to contracts for the supply or procurement of a bespoke (or tailored) IT solution. The latter might involve elements of:

• software licensing
• configuration and implementation services
• ongoing support and maintenance services
• professional consultancy around the integration or future-proofing of the solution within a wider business model.

A common feature across bespoke or tailored IT contract negotiations is how the front end of the contract will tie in with the technical specifications, service descriptions, service level agreements, project plans and payment schedules often annexed at the end. These effectively set out what is required to be delivered, and how, when, and at what cost.

It is common for the teams leading on both sides to get caught up in extensive (and often heavily debated) negotiation of the main contract terms.

That negotiation is key to setting out the rights and obligations of each of the supplier and customer, and essential to documenting how contractual risks and responsibilities are allocated between them. But it is often done at the expense of the focus required on the statements of work, schedules and annexes to the contract, which document the technical, operational and pricing detail.

For instance, the front end of the contract will often refer to the supplier’s obligation to deliver the solution, or services, in line with the annexed specification or statement of work.

It is crucial to ensure that specifications or statements of work capture accurately, and in enough detail, the IT solution that the supplier is able to deliver and the business customer expects to receive. If they do not, the contractual remedies if that solution is not received or is defective (e.g. contract damages or corrective action) that were carefully agreed in the front end of the contract, might not carry the weight or enforceability that was intended.

In another instance, the contractual terms being debated by the lawyers might go into detail about the consequences of late payment by a customer for particular stages of the project, or delayed performance by the supplier.

But, if the project plan and payment schedule attached as schedules do not clearly link each payment to the achievement of a particular milestone, key date or the completion of an acceptance procedure, then the parties to the contract are left with ambiguity in their contract as to when payments are properly triggered.

On such projects, my advice is to ensure that the key stakeholders on both the supplier and customer side who need to have input into the contract (whether from a commercial, technical, operational or legal perspective) are working collaboratively and in parallel on their pieces of the project from early on in the process.

Ensure that time is factored in, before finalisation of the contract, for your legal team to review the contract as a whole, including the statements of work, schedules and annexes. This will give all parties the best chance of ensuring that all of the pieces of the contract puzzle fit together and that you end up with a contract that does what you intended it to do.

Rajeshree Bhojnani, who can give further advice on this, is on 0118 945 0164 or at [email protected]