Read the small print on ASP deals

Most IT directors with experience of outsourcing are familiar with the legal pitfalls involved in negotiating a complex contract. An application service...

Most IT directors with experience of outsourcing are familiar with the legal pitfalls involved in negotiating a complex contract. An application service provider (ASP) solution therefore presents an attractive and speedy alternative to complicated legal wrangles.

Yet you should be aware of legal issues which can arise in downloading standard contractual terms as part of an ASP package.

Terms and conditions

Goods and services are usually supplied subject to standard terms and conditions. A customer downloading an application usually accepts a provider's standard terms. Sometimes these can undermine the advantages of an ASP solution. So look out for:

  • How the agreement can be terminated. You will want to ensure that you have maximum flexibility, without penalties, for early termination.

  • How liability has been limited. If your business is to depend on ASP applications you should be aware of the limitations which the provider seeks to impose on you. For example, if your e-mail system goes down and your business is affected, this sort of clause could affect your ability to bring a successful damages claim

  • If you are using more than one provider, you will need to consider the way in which the providers' terms inter-relate and what will happen if there is a dispute as to which provider is to blame for an outage.

    Service levels

    One of the most important issues for any customer is the quality of the services to be provided. In large outsourcing contracts (or where ASP services are to be customised) there are always complex negotiations about service levels, how failures are to be remedied, how improvements are to be introduced and the responsibilities that stay with the customer.

    Some of the greatest risks in downloading a standard ASP product relate to the quality of the service to be delivered and the obligations which are placed on the customer.

    Intellectual property

    A standard ASP solution which is based on regular monthly payments will never entitle a customer to any intellectual property in the product supplied. Yet, to the extent that there are subsequent customisations or improvements to your solution you should check whether your business will have a right to use these.


    We are all familiar with the security issues attaching to the use of ASPs. Yet where your applications are run on a provider's system there will be important legal issues concerning security, transfer and storage of data which must be considered

    Cross-border issues

    If you are downloading applications from outside England and Wales you will likely be dealing with terms and conditions governed by another legal system. It would be naive to imagine you can persuade a service provider to change its approach but an appreciation that your contract is, for example, subject to US law may be a factor in your decision to proceed with a particular ASP product. If you do proceed, it might be difficult to pursue claims or enforce judgments in a foreign jurisdiction.

    Staff issues

    An ASP solution will not present the usual transfer of staff problems which arise in traditional outsourcings. In fact, the employment issues which arise in ASP-based solutions, will probably centre on the fact that the provider will not recruit your IT staff. Redundancies within your company and claims for unfair dismissals need to be considered.

    David Isaac is a partner at solicitors firm Masons, which specialises in IT. He can be contacted on 020-7490 4000.

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