I have recently been negotiating some complex IT contracts for a client and again witnessed the disconnect between the IT vendor and its customer. I was reminded how often this leads to legal problems, difficulties, and disputes.
What follows is a list of common issues highlighted in a great article I read recently, shared by a UK Judge who adjudicates IT disputes regularly. For him these issues are invariably the root cause of IT disputes if not addressed. Many of them arise from the disconnect. All of them and others mentioned in this article, definitely apply in the South African context. For him, many IT disputes relate to procurement or performance difficulties. In our experience, they also arise from insufficient attention being paid to the commercial terms.
Procurement issues arise from:
- Requests contained in the RFP – especially when customers make vague requests for ‘world-class’ systems. This creates problems later! If the RFP isn’t clear, the responses will be vague too.
- Letters of intent and MOUs create massive legal uncertainty as to whether there is, in fact, a contract given the way in which they are used in South Africa which is often misunderstood – they should be banned.
- Work regularly starting during contract negotiations.
- The IT contract not being in plain language – which often results in ambiguity in meaning and watered down legal rights.
Insufficient attention paid to the commercial terms
Insufficient attention being paid to the commercial (or non-legal) terms arises from:
- The urgency of IT projects – customers want systems up and running as quickly as possible.
- Customer uncertainty – they are not necessarily IT-savvy and struggle to define their requirements.
- Solution uncertainty – the solution is not properly defined at the start of the project.
- Inadequate acceptance testing procedures – monitoring and testing can take longer than originally anticipated, especially if it is necessary to adjust functions and processes; the go-live date needs to be a flexible horizon.
- Price – to some extent costs have to be estimated but, unsurprisingly, uncertainty relating to scope, time and price leads to disputes.
Performance issues arise from:
- the customer’s lack of IT knowledge and unwillingness to admit this.
- changes and scope creep, often related to the initial lack of clarity about the customer’s requirements.
- implementation – did the solution meet the customer’s expectations?
- poor quality or performance – problems with functionality and performance are often not easily identified until the system is rolled out to users.
- customer’s using standard service level agreements (SLAs) without taking the trouble to work out – in the relation to the specific service being supplied by the vendor – their required service levels, key performance indicators in relation to those service levels and how to measure the service levels. There is no such thing as a “template SLA”!
An obvious way of avoiding legal problems, difficulties, and disputes is to look at the customer’s requirements in the context of the solution and establish the best fit between the vendor’s standard software product and any customized solution it might offer to the customer (which often creates difficulties later due to the need to interface with upgrades and new versions of standard products).
Disputes arising from uncertainties around the work, time and price involved of an IT project can be avoided by assessing resources carefully. Experience of similar projects is useful and, although the customer may not have undertaken a similar project, there is always the option of employing a technology consultant with relevant experience to fill in any gaps in expertise and bring experience of similar projects to the procurement process.
It’s about minimising the “known unknowns” and the “unknown unknowns” (a term used by the former US Defence Secretary – and poet – Donald Rumsfeld).
The core elements of the contract need to define the solution while accepting the concept of change. This means developing processes for dealing with revised scope and timing. When it comes to costs, it is worth negotiating a guaranteed price cap and agreeing gain and pain sharing between the customer and the vendor.
Secondary elements of the contract include provision for proper project management, notice clauses, limited liability and methods of dispute resolution. Many lawyers are still not familiar with the very good dispute resolution clauses suggested in King III™.
These are just a smattering of the many issues that lead to IT disputes. It is important to do things with a clear head and understand what is required and what can be provided. And to make sure that the commercial terms in the IT contract deal with the issues which often lead to disputes if neglected.