IT consultants are facing an
increased threat of legal action from dissatisfied clients as
the economic downturn worsens.
Hiscox, the specialist insurer, has warned that the economic
downturn is likely to expose IT consultants to potentially costly
legal claims for delivering a product or service that clients
allege does not meet their expectations.
Listing a defective product or service from an IT supplier as
being the top reason for a breach of contract claim, the insurer
urges IT consultants not to over promise and focus on better
scoping of IT projects from the outset, and tighter management of
client expectations.
Cases of breach of contract - where a company claims its IT
supplier has failed to deliver a product or service in line with an
originally agreed contract - made up 36% of all the professional
indemnity claims dealt with by Hiscox in the IT sector over a four
year period.
Of the largest 100 IT claims handled and paid at Hiscox, the
main causes of claims were:
68% claiming defective product or services - "it didn't do what
they said it would do"
60% claiming inadequate project management
56% claiming inadequate initial scoping of the project
According to Hiscox, breach of contract claims could increase
during an economic downturn where companies, who may be short of
money, look to make cutbacks and reduce investment.
IT projects often come under cost-cutting scrutiny and some
companies decide they can recoup some of their original investment,
or get out of an existing contract, by claiming their IT contractor
or company has not provided them with the IT system or service they
were promised, said Hiscox.
Sam Franks, specialist IT risks underwriter at Hiscox, said:
"The current economic downturn highlights the importance of IT
suppliers, big or small, properly scoping a project from the outset
to avoid costly legal action.
"It is critical they set down in the clearest terms what they
intend to deliver with realistic costs and timelines, and then by
careful management of the contract and client expectations, ensure
any potential room for misunderstandings or disagreements is
minimised.