Jeremy Holt, head of the Computer Law Group of Clark Holt, Commercial Solicitors, provides a practical framework of help for IT directors coming to grips with IT contracts.

Pity the unfortunate IT director. It has been bad enough trying to get the whole IT project organised. Now, possibly at the last moment, the contract(s) have arrived, some with print small enough to make the reader go blind.

The IT director suspects - rightly - that these contracts are one-sided in favour of the supplier but knows that the project will only proceed if those contracts (or something similar) are signed. How does the IT director work out what needs to be done and from whom advice can be obtained?

Who are you going to call?

You are not going to be able to do all this on your own. Computer law is a specialist area and the right advice from a lawyer experienced in this field can save a great deal of trouble later.

In order to find a decent computer lawyer there are two directories of lawyers that you might like to consult. These are Chambers Guide to the Legal Profession and the Legal 500.

New versions are published each year. Each has sections on lawyers who specialise in computer law (sometimes called information technology law). These two books can generally be found in the reference section of public libraries.

Alternatively you can ring the Law Society (020 7242 1222) or the Society for Computers and Law (0117 923 7393) for suggestions of lawyers who work in this field and who could help you.

Any computer system will require the purchase of hardware, software and services. It is normal to decide upon the software first and then to choose the appropriate hardware.

Contracts for hardware purchase

Because computer hardware is so much more reliable than it used to be, contracts for the supply of hardware are not generally contentious.

The following points must be agreed in detail within a hardware purchase contract: a detailed description of the hardware, a warranty about the quality of hardware, delivery dates, price, acceptance testing, future maintenance and training.
Problem areas that can arise are:

  • whether the hardware is large enough for anticipated demand in the future;
  • the integration of one kind of hardware with other hardware that may have been supplied by a different supplier.

Contracts for hardware maintenance

Hardware maintenance is more of a commodity than software maintenance. There are likely to be more alternative suppliers for the maintenance of hardware. Software on the other hand requires an insight into the way it was originally written.

There are two different types of hardware maintenance - preventive maintenance and corrective maintenance. Preventive maintenance covers the regular testing of the hardware before any problem is reported. Corrective maintenance is dealing with faults as and when they arise, normally in response to a service call from the customer.

With corrective maintenance the key element is the response time - how quickly will the supplier start to respond to the problem once it is reported? This is generally within a fixed number of working hours (such as eight).

This means that an engineer will arrive at the site no more than eight working hours after the problem has been reported by the customer to the supplier. This does not mean that the engineer will solve the problem within eight hours - merely that a start will be made to try to solve it.

Payment for hardware maintenance is generally made in advance on either a monthly or quarterly basis. The annual amount varies but can often be 10-15 per cent of the list price of the hardware.

Contracts for software licences

To put it at its simplest any contract for software should allow you to use the software in the way that you envisaged without the risk that anyone can come along later and say either that you cannot use it any more or that you have got to pay more money.

It follows that one of the first checks that you should do is confirm that the software supplier either owns the copyright in the software or has the right to sub-license it to you. It is a feature of the computer industry that most software is licensed to end-users by organisations other than the actual owner (i.e. it is sub-licensed).

You should not put up with any oblique answers to your demand to the supplier for evidence that they can license the software to you. They should be able to produce it to you immediately.

Contracts for software maintenance

No software of any complexity is ever free from errors. The older the system the more likely that it will need maintenance. If a system is installed in a rush, it is likely not to have been tested properly and so require more attention after it has been installed. In some ways future charges for maintenance are the icing on the cake for software developers. It is important for managers to be aware of this as three-quarters of a budget for software may be for future software maintenance.

Maintenance or support will normally cover the investigation by the supplier of errors in the system reported by the customer as well as updated documentation, telephone or, more frequently nowadays, online advice.

It will in most cases cover updates of the software. The customer may want to categorise different kinds of problems into those that could be critical for its business and those that are no more than an irritation and could be dealt with next time a new version of the software comes out.

The supplier's response time will be different depending on the severity of the problem. The supplier will not normally commit to a fix within a particular period - only that they will start to fix it within a particular time.

The customer will want to ensure that the maintenance charges will not rocket up. One means of doing this is to tie the maintenance charges to a percentage of the list price of the software (say 10-15 per cent) but of course the supplier has control over such list price. Payment is almost invariably made in advance. In the past it was for a year but now it is more commonly paid three months or a month in advance.

It is also a good idea for the customer to ask the supplier to commit on its part to supply maintenance for the potential life of the software.

Hot list of points about computer contracts

Read this on its own if you have not got enough time to read the rest of the article. But read it carefully.

I. Make sure that you know exactly what you want and what is achievable because if you do not know, then you are not going to get the contract right.

II. If a particular point is important to you make sure that you get it in writing from the supplier. It may well be that one aspect that is critical to you is not dealt with in the supplier's draft contract at all. An ordinary letter from the supplier is sufficient provided that it is either cross-referred to in the main contract or included as a schedule.

III. Make sure that you get the supplier to agree to supply support and maintenance for the products purchased for a sensible length of time. You do not want the supplier cancelling support after a couple of years just when your new system is working well.

IV. Make sure that you order enough training. One of the most common reasons for the failure of a computer project is inadequate training. As a rule of thumb roughly 20 per cent of a project's cost should be spent on training. If it is substantially less than that you should ask why.

V. Make sure that you can get access to the source code of the software programs supplied if the supplier either goes into liquidation or stops supporting the software. Ideally this source code should be deposited with an independent third party and kept updated by the supplier as each new version comes out.

Finally never forget that the contract is a delivery mechanism for ensuring that a project is completed in the right way at the right time by the right person and for the right price. No more, no less.

About the author

Jeremy Holt is the head of the Computer Law Group of Clark Holt, Commercial Solicitors and co-editor of A Manager's Guide to IT Law. For further information please visit www.clarkholt.com.