How to get something out of your system

Computer systems – be they hardware, software or a combination of both – as well as associated services such as installation, design, training, consultancy advice and support and maintenance are meant to deliver a business advantage by solving a problem, increasing efficiency or saving money. To achieve that, certain principles and elements of contract need to be adhered to to protect the registered social landlord purchaser’s interests – and these should be dealt with before a contract is entered into.

If software is purchased on a “shrink-wrap licence” basis (where the standard form licence is literally under the shrink-wrap when you open the box) then the purchaser is usually relying on the reputation of the supplier (say, Microsoft) and will have very little contractual remedy against them if the product – the code – is defective. Also, the licence agreement will be non-negotiable.

But when software is purchased from a smaller supplier (often with related hardware and services), some contractual protection is usually offered over and above that pledged in a shrink-wrap licence. This is because the smaller supplier does not have the reputation and market position of a company such as Microsoft and needs to offer better protection to the customer in order to induce a purchase and build up a reputation.

The best possible approach for a purchaser in this case is to contract on the purchaser’s own contractual terms, which will contain all of the protections that it could require. This can be done, depending on the relative negotiating strengths of the parties.

More commonly, however, the purchaser will be presented with the supplier’s standard terms, and they should take legal advice to try to get a better deal and ensure that the business advantage it seeks from the product or service is not lost due to unfavourable contractual provisions. Smaller suppliers are generally open to this.

Papers in order

As well as amending the contract, certain other documents need to be prepared before entering into the contract.

If the purchaser goes through a formal tender process, it will have an “invitation to tender” document that should (if correctly prepared) describe in detail the product and the functionality that the purchaser requires. The successful supplier should indicate whether or not its product meets the criteria set out in the tender when presenting its response. These documents taken together, and any further pre-contractual correspondence about functionality and technical matters, should form the specification.

If the purchaser does not go through a formal tender process, this readily available tender document may not exist and it is vital that the purchaser produces a document that is sufficiently detailed in technical terms, and correctly describes the required functionality.

An installation plan including financial forfeits for time delays should be drawn up – before the contract is signed

A fundamental term of a contract for the purchase of an IT product must be that, once installed correctly, the product will do what the specification says it will do.

If the supplier will also install the system, draw up a plan detailing how and when this will be done. This is often agreed after the contract has been entered into, when the purchaser has less negotiating strength than the supplier does. But depending on how disruptive the installation will be to business, and how important time factors are, it can be useful to agree this document before the contract is entered into.

A well-drafted installation plan should include milestones to be met by certain target dates – and failure to meet them should have adverse financial consequences for the supplier. A payment plan also needs to be agreed to coordinate with the milestones in the installation project.

Also, build in a change control process to give the flexibility that is essential where an ongoing project is concerned – a “change control process” is simply contractual jargon for a clause that allows for amendments to the installation plan and the payments plan.

A purchaser must have the right to perform acceptance tests on the product at each milestone and at the end of the installation process, testing whether or not the product meets the functionality criteria set out in the specification. If the product fails, the supplier should have an opportunity to fix it but if failings continue after an agreed number of repairs, the purchaser would want the right to reject the product, receive a full refund and be released from all further obligations.

The purchaser should also try to see to it that as much as possible of the software licence fee is payable upon final acceptance. A document setting out the methodology of the acceptance test needs to form part of the contract.

Software licence agreements should not be entered into without related support, escrow and disaster recovery agreements also being in place.