How to draft a IT technology contract

IT_contract Drafting an IT contract for a new technology project can be a legal minefield for any business, but the key to success is careful planning. Solicitor Richard Abbott offers his advice. In all the excitement of a new IT project, it is important to step back and ask the simple question: what is the project designed to achieve? If this question cannot be answered at the outset, do not proceed. If the parties have not agreed this basic point, it will not be possible to accurately draft the contract or complete the project satisfactorily and disputes are likely to arise in the future. Another key point is to agree the timeframe. For a straightforward project this may simply be a question of agreeing the date on which the project is to be delivered. However, most projects are more complex. There will often be a number of stages, any of which can be delayed, causing ‘project creep’ with deadlines being missed. One method to deal with this is to break the project down into a series of time boxes and to agree what will be achieved in each one. The obligations of each party need to be specified. For a project to succeed both parties need to have a clear understanding of their responsibilities and these should be set out in the contract. Other key terms will include payment and acceptance, the details of which are often set out in the schedules, together with termination, warranties, dispute resolution and liability. Ownership of intellectual property (IP) will need to be determined. Each side will wish to retain ownership of its own IP but there will need to be a discussion as to who owns IP created during the course of the project. Consideration will also need to be given to licensing IP by its owner to enable the other party to use it during or after the project is completed. Consideration should also be given to putting source code into escrow to enable it to be used by the customer in the event of the supplier going out of business. The schedules are a vital section of the contract. It is here that the parties will set out the details of the services that are to be provided together with any key performance indicators and service levels. The payment schedule will set out the formula by which charges are to be calculated and how payment is to be made. The acceptance schedule will allow the customer to be satisfied that the system operates as intended. This brings us back to the opening statement & you cannot know whether a system is operating properly if you do not define at the outset what it is that is being supplied. Two schedules that often get overlooked are ‘Governance’ and ‘Exit’. Governance sets out how the contract is to be managed. It should set out when meetings are to take place, their regularity, who should attend and their purpose. An escalation procedure will enable issues to be referred to more senior levels of management. The significance of good governance of a project is in enabling issues to be dealt with at an early stage before they become disputes. Exit is often overlooked because no one wants to look at the end of the contract. The fact is that contracts do end. The customer will want to ensure that there is a smooth transition to a new provider and the Exit schedule will allow for this. IT projects are complex but with a well drafted contract and the active engagement of both parties the risks of problems arising can be mitigated and sometimes prevented altogether. Richard Abbott is a Greater Manchester-based business lawyer, specialising in technology and data protection. Disclaimer: This information is for guidance purposes only and is does not constitute legal advice.