Many IT directors are still unaware of the legal
protection they have when IT projects go wrong. This is despite the
fact that a body of case law has built up which has shifted the
balance more firmly in favour of IT buyers.
The £11m dispute between the Co-operative Wholesale Society and
Fujitsu Services over an electronic point of sale system, which the
firms failed to settle through mediation last month, illustrated
how high the stakes are for IT departments and suppliers.
But if they are to benefit from these developments, IT directors
need to make sure they are aware of their rights and take them into
account when awarding contracts, said IT consultants Best Practice
Group.
Two key cases have laid down the most important legal principles
(see box), Best Practice Group said.
The first case places an obligation on suppliers to be candid
about the systems they are delivering. They have a duty to explain
not only what the system can do, but to also point out any
limitations.
It also means suppliers cannot hide behind caps on their
liability in their contract if parts of a project go wrong.
The second case places specialist suppliers firmly within the
realms of the Sales of Goods and Services Act. This requires
suppliers to provide systems that do not have material defects and
are fit for purpose.
To ensure that their organisations have maximum protection under
the law, IT directors should only award contracts to suppliers that
claim to be specialists in their field if they are to reap the
benefits from these developments, said Allan Watton, managing
director of Best Practice Group.
Ninety per cent of suppliers claim to be specialists in their
fields and can provide end-users with reference sites and
testimonies, he said.
Specialist suppliers are under a legal obligation to be candid
with their customers about what they can offer, the limitations of
their solutions and the assumptions they are making about your
business, said Watton.
"The supplier will have to make it clear, for example, whether
you are going to need hardware changes or whether you are going to
need to upgrade your network," he said.
Watton advised businesses to pay shortlisted suppliers to visit
the company and assess what its business needs are before embarking
on the work.
Paying suppliers to assess a company's business needs places an
obligation on the supplier to ask the questions the IT department
might not have realised needed to be asked, said Richard Mawrey, a
leading barrister with 30 years' experience in IT disputes.
"You make the suppliers responsible by asking them to come in,
look at the business and see what it does. The supplier's systems
are going to have to translate to the businesses' way of doing
things. Ask the supplier to tell you what it can do, what
compromises will be needed and whether it is an intractable
problem," he said.
A common reason for IT projects failing is that different parts
of the business expect different things from the same IT project.
Paying a supplier to look at the business case can alleviate this
problem, said Mawrey.
"At a very basic level it forces the business to appreciate
what it is trying to do. I often see cases where people think the
system is trying to do A and people in another part of the business
think it is trying to do B," he said.
Kiran Sandford, head of the IT practice at law firm Mischon De
Reya, agreed. "Far too many problems arise because the supplier
does not understand the business needs of the end-user and the
end-user does not understand their own needs," she said.
However few organisations are thought to take up this option,
even though this approach has also won support from software
services association Intellect. It has developed a programme to
encourage suppliers and customers in the public sector exchange
information on projects before tenders are issued.
Nick Kalisperas, director of sofware and services at Intellect,
said, "I think what we want is a far more open relationship between
end-users and suppliers."
But it is important for IT departments to make it clear that
suppliers will not be placed at a disadvantage if they criticise
proposals for IT systems, he said.
"A degree of reassurance should come from the customer that if
the supplier challenges the way the contract is written, that
should be counted in the favour of the supplier. That should be
actively encouraged," he said.
Despite everything, if projects do go wrong, it is essential
that IT departments put the onus on fixing the problem on the
supplier rather than attempt to solve it themselves.
"Do not try and put it right yourself. That is fatal. If you
start interfering with the system, the supplier has a get-out
clause. They can argue that everything was fine until you started
making changes," said Mawrey.
However strong an IT department's case against a supplier, it is
far better to try to work with your supplier to solve problems than
to go to court, said Mawrey.
An independent expert can often help the two sides reach a
compromise that puts the IT project back on track, he said.
Legal rulings on IT disputes provide safety net for
buyers
Stephenson Blake versus Streets Heaver, 1992
This case placed a legal obligation on IT consultants to offer
their clients sound advice.
Family firm Stephenson Blake sued IT consultancy Streets Heaver,
which helped it select an IT system, when it emerged that the
system did not behave in the way Stephenson Blake had
anticipated.
The judge ruled that as a professional adviser working in a
specialist field, Streets Heaver had a duty to think ahead for its
client and an implied responsibility to explain not only what the
system would do, but what it would not do.
The case means that suppliers can be legally liable if they
gloss over problems or the consequences of systems they propose to
end-users.
St Albans District Council versus ICL, 1996
The Hertfordshire council bought a system from ICL to calculate
poll tax. The system did not work, causing St Albans losses of £1m
in revenue.
The case established that software does benefit from the
protection offered by the Sales of Goods and Services Act, which
requires products to be "fit for purpose".
Specialist suppliers must now work within the Sales of Goods and
Services Act by providing systems which do what the customer was
told they would do. If the customer has been told the system will
perform a standard function, it must be provided. If not, the
supplier must pay the costs for making the system work.
Source: Best Practice Group