What not to forget when entering into an IT contract

Businesses often sign up to IT contracts without giving them much or any consideration. When taking on a licence for a new piece of software, or having software or an IT system, including a website, developed for you, it is important that you do not simply sign it or tick the ‘I have read the terms and conditions’ box without having first read and considered at least the main points.

Here is a non-exhaustive list of things that you should consider when reviewing any IT contract:

1. Does the contract actually say what you have agreed? You need to ensure that what you are signing up to includes everything that you have agreed. This is especially the case if you having software or a website designed for you or you are licensing software for a particular purpose.
2. Does it include everything they promise? When attempting to sell software, suppliers will often put together sales pitches or respond to invitations to tender. If these pitches or tenders are not referenced or repeated in the contract, then they are likely to be very difficult to rely on once the contract has been signed.
3. What do they have to do? You must ensure that what the supplier is obliged to do is set out clearly in the contract and that the warranties the supplier provides are sufficiently robust in case things go wrong.
4. How much will you have to pay? You must be certain how much you will pay for the software and related services you are to receive. Services are usually charged for on either a ‘time and materials’ or ‘fixed fee’ basis. If the former, you must make sure that you keep control over likely costs. This can be done by making the supplier provide estimates or a cap to the fees.
5. Who owns the intellectual property? If you are having software (or anything else) developed for you, then you should ensure that the intellectual property will be owned by you. If the contract does not say anything about intellectual property then it will usually be owned by the developer and not by you.
6. What happens if the supplier goes out of business? Where you do not own the intellectual property to the software that you are using, you should consider obliging the supplier to put the source code into escrow. You can then access that source code if the supplier’s business fails for any reason.
7. Will they have access to personal data? If the supplier will have access to any of your or your clients’ personal data then you must make sure that the supplier complies with the applicable data protection legislation. This is of particular importance when the new data protection legislation, the General Data Protection Regulation (GDPR), comes into force in May 2018.
8. Is liability overly limited? The supplier will look to cap its liability if anything goes wrong. You need to ensure that the cap of potential liability for the supplier is not too low bearing in mind the likely consequences and impact on your business if anything does go wrong.
9. How easily can the contract be terminated? You need to look at how easily both parties can terminate. You may well want the right to get out of the contract if, for example, the needs of your business change. Equally however, you may not want to be in a position where the supplier can terminate on very short notice, or if you miss a single payment by a few days.
10. What are the consequences of termination? You need to consider what will happen when the contract comes to an end. You will want your data and other proprietary materials returned and you may well want to oblige the supplier to help you to effect a smooth handover to a replacement supplier.

It is very important that all IT contracts are carefully considered before entering into them. In some scenarios it is unlikely that you will be able to negotiate some or all of the terms. In other cases it may be appropriate to have a full negotiation. However in both scenarios the same principles apply and it is important that you know what you are signing up to.

At Edwin Coe, we have a great deal of experience of reviewing contracts for clients who are looking to implement or have developed software, websites, or new IT systems of all sizes and descriptions. The experience that we bring ensures that our clients have advice that is appropriate and proportionate to the contract that they are entering into.

If you wish to discuss this topic further, please contact Nick Phillips – Partner, or any member of the Edwin Coe Intellectual Property team.

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