Balance of power shifts to users in IT disputes

Many IT directors are still unaware of the legal protection they have when IT projects go wrong. This is despite the fact that a...

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

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