Opinion

IT contracts: standard terms & conditions explained

Standard terms and conditions are used by most technology suppliers. We have noticed some themes developing over the past 12 months during contract negotiations. These themes are consistent across many segments of the technology sector. We have set out some of the more common contract points below and a brief description of the agreed positions which are the middle ground. You will need to negotiate to get them. Our recent experience is that buyers are also now less willing to trade low price for sub-standard terms and conditions.

Term

Annual term is market standard but we are seeing more suppliers attempting to lock in longer initial terms in return for an alleged better price.

Termination

Market norm is 90 days prior written notice prior to an anniversary date. Improvements can be achieved if possible to allow flexibility. Some suppliers are allowing 90 days at any time but this is an exception but possible.

Price reviews

Price reviews should be RPI only. The days of fixed percentage increases seem to be a thing of the past in most cases.

Payment terms

30 days is still common but clients notice that the unwritten grace periods have gone and suppliers are chasing for payment much quicker. Some even now applying penalty interest more frequently.

Late payment

Suppliers are unsurprisingly quite worried about debt. Fairly standard late payment interest is 1.5% to 2% above the Bank of England Base Rate.

Warranties

Buyers should avoid giving warranties other than for paying invoices if possible. In return, buyers should expect warranties in relation to equipment, standard of services performed and quality of personnel. It is unlikely that any software companies will offer "fit for purpose" or software performance warranties longer than 90 days.

Indemnities

Buyers should expect indemnities for negligence and wilful default and where applicable intellectual property infringements. Suppliers are sometimes now asking for indemnities from buyers which are not often appropriate and should be resisted.

Liability

Buyers should press for uncapped supplier liability if possible. Where it is capped it should be at least for the contract value or equal to 12 months fees paid. Some suppliers are offering less than that. Buyers should always avoid capping intellectual property indemnities.

Assignment

Each party should have the right to assign subject to consent (not unreasonably withheld). This can be important if you need flexibility in selling your company in the future. It is usually just in favour of the supplier but the buyer can easily have it amended to benefit both parties.

Force majeure

Suppliers are still offering very broad and subjective force majeure clauses. This should be mutual and limited to things which truly are not in a parties control and could be categorised in the "Acts of God" type. Force majeure stoppages should be limited to 3 months following which either party can terminate.

Intellectual property rights

IP suppliers must warrant that they own or have all rights which they are granting. It is also normal for an indemnity to be granted by a supplier for breaches. We have seen some examples of suppliers not offering this or asking the buyer to make the promises instead. Buyers resist it.

Entire agreement

Separate e-mails from supplier sales staff promising things outside the main agreement will not form part of the contract. Entire agreement clauses exclude any pre-contract documents and statements from forming part of the signed contract unless they are expressly written into the signed contract. All contracts should be checked to ensure all promises and statements made by sales staff are included into the signed contract.


About the authors

Nick Phillips is head of the IT and IP department at Barlow Robbins LLP. Nick specialises in intellectual property, information technology and commercial matters. His practice encompasses all aspects of IP, IT and commercial work and includes litigation, advisory and transactional matters. He also acts as a Nominet appointed expert deciding UK domain name disputes.

Brett Farrell is an associate at Barlow Robbins LLP. He is a specialist technology and media lawyer and advises on all aspects of technology and media law, he has a wealth of experience in the regulated technology sectors such as the capital markets.

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This was first published in August 2010

 

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