Spotting pitfalls in IT contracts
You are the director tasked with handling a new IT contract for the company. The supplier has given you their contract which says that you can’t rely on any pre-contract discussions. But what if things go wrong, surely this can’t be right?
Don’t just put it in the drawer
The chances are that, at some stage, you’ll be handed a “standard” contract by a supplier and asked to sign it. When this happens, don’t just give it a cursory once over. As it’s a “business-to-business contract”, the company will be bound by its terms whether or not you’ve read them.
Tip. There’s no reason why you can’t scrutinise it and object to any clauses you’re unhappy with.
Parting of the ways
Since we last addressed this issue (yr.11, iss.2, p.5, see The next step) the courts have flagged up the sort of issues which are worthy of further study in IT contracts. The case in question is BSkyB Ltd v HP Enterprise Services UK Ltd 2010.
Picking you
BSkyB (BSB) entered into a contract with EDS (now owned by HP) for it to design and build an IT system. Things began to go wrong pretty quickly and deadlines slipped. As a result, the work was put “on hold” and the deal analysed. Following that, the original contract terms were superseded by a “Letter of Agreement”.
It’s all over now
Unfortunately, this attempt to resolve the issues also ended in failure and the parties’ relationship ended acrimoniously. BSB walked away from the contract citing that EDS salesmen had “misled” it, whilst EDS claimed it had terminated the contract because BSB had failed to pay its invoices.
The nuts and bolts
As with most commercial contracts, this one contained an “entire agreement clause”. It said that the contract represented the complete agreement between the parties, i.e. any statements made prior to the parties entering into it, e.g. pre-contract negotiations, were disregarded.
Coming to get you
When it came to what the EDS salesmen had told BSB, it tried to hide behind this clause saying that those discussions were irrelevant. However, the court said that the clause wasn’t wide enough to exclude them and was void. This is because it didn’t specifically say that any pre-contract representations were “withdrawn or excluded”.
Other thing. The contract also contained an “exclusion of liability clause” that capped any claim. BSB got around this by establishing “fraudulent misrepresentation” (which can never be excluded), i.e. the salesman had lied about the product, so the cap didn’t apply.
Tip 1. If possible, get the pre-contract discussions written into the contract. If not, at the very least, always have them confirmed in writing, e.g. by e-mail.
Tip 2. Make sure the contract reflects just what the supplier has agreed to do. As a bare minimum, it should spell out the actual specifications of what they are doing, a timetable of work, the payment triggers and exclusion of liability.
For a link to the previous article, visit http://companydirector.indicator.co.uk(CD 11.13.07).
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