Common Themes to Avoid in IT Contracts

IT projects can range from a simple website development to the most complex system integration. Your IT Contract should therefore clearly describe what you’re doing and set expectations as to when you’ll do it and on what terms. Over time, your products are likely to be enhanced and updated. You may make modifications here and there, add new items and remove others. You might invest in infrastructure and change the way your products are delivered. Or there might be a change to the laws affecting you. When was the last time you read through your IT Contract? Is it in plain English and easy to understand and does it explain exactly what you do for your Customers?

The following are some common areas that may indicate that your IT Contracts need a legal review.

Ensure You Get Paid

One of the most important clauses in your IT Contract is how you are going to get paid by your Customers. Once the work has been completed and handed over to the Customer it is sometimes very difficult to get them to pay. Probably the most efficient way to ensure that you don’t spend your precious time chasing Customers that are now debtors, is to schedule payments to meet performance deadlines. For instance, a concise clause which states that the Customer will pay 25% of the contract price upon delivery of stage 1, 25% for stage 2 and a final amount to be paid upon completion of the project.

Don’t Make the Contract too One Sided.

Customers often insist that you accept an extremely one-sided contract, particularly in the context of a competitive tender process. While this might seem like an effective approach to managing risk, having an unusually onerous IT Contract that does not reflect market practice is often counter-productive to the projects successful completion.

Your investment in a project needs to be proportionate to the benefit that you receive, and your incentive to perform. An IT Contract that strikes a fair balance between risk and reward will always be more effective in encouraging positive performance than a heavily one-sided agreement.

Make sure you are not exposed to Unlimited Liability

We recently reviewed an IT Contract for a client that exposed the business to unlimited liability. The clause in question stated that “Client is liable for any loss incurred as a result of providing the services…” It then went on to state that “Client would indemnify against any loss, damage, liability, cost (including legal costs assessed on an indemnity basis) and other expenses caused in connection with the provision of the services.” This is an extremely dangerous clause and had it not been amended the client would have been exposed to consequential losses, loss of profit and damages.

Don’t use Tech Friendly Language that doesn’t create Any Legal Obligations.

This is an example from a recent website development contract that really adds nothing to the contract. “In this contract you won’t find any complicated legal terms or long passages of unreadable text. We’ve no desire to trick you into signing something that you might later regret. What we do want is what’s best for both parties now and in the future”.

Clauses like “we can’t guarantee that our work will be error free and so we can’t be liable to you or any third party for damages including lost profits, lost savings or other incidental, consequential or special damage even if you’ve advised us of them”.

This is all very cool tech speak but it may not be so cool if what the developer provides you is not what you agreed. Then that complicated legal text which is called a warranty under the Competition and Consumer Act may come into play. The developer should be aware that no matter what the desire, you cannot contract out of consumer protections under Australian Consumer law.

Ensure Your IT Contract doesn’t refer to outdated laws

If your IT Contract refers to the Trade Practices Act, the National Privacy Principles or has a dispute resolution clause that refers to arbitration then it is time to speak with your lawyer. . Similarly, if you have downloaded a free contract from the internet, or cut and pasted a few terms from an American website (prime giveaway being clauses that are a page long and a liability clause in capital letters) then you are not doing your Customers or your business any favours. You are only opening your business up to problems in the event there is a dispute.

Your IT Contracts should be clear, concise and written in plain English. What you present to your Customers should be a reflection of your brand and how you do business. If you don’t review and ensure that your contracts are up to date and amended as your business changes, then your IT Contract is useless.

Bayard Lawyers’ Master Services Agreement may be a useful starting point for your business. Download a Master Services Agreement or pre-book some time to speak with one of our Technology Law experts.

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