Legal side of IT contracts 'not just a matter for lawyers'

Sketchy or one-sided specifications and 'boiler-plate text' should be avoided

As a combination of legal and technological matters, both with specialist and complex terminology and slippery meanings, an IT contract is not something to be passed over too lightly, says lawyer Stuart van Rij.

It is often said that the contract should ideally be put in a desk drawer and forgotten about; if it has to be brought out then it’s a sign that something has gone wrong. But no business should underestimate the risk of finding itself in an undesirable position slightly at odds with its understanding of what was to be provided, yet not being able to point to the deviation from the terms as the other side understands them.

IT contract preparation is rarely a job for one person, van Rij told a recent meeting of the Technology and Law Society in Wellington. The "techies" and the business experts should be involved, along with the project manager, to bring all their skills to the exercise. The project manager is the person who will be putting the contract into practice, and can advise the lawyers on what is relevant or irrelevant to the particular situation.

It’s too easy for a lawyer to plug in a standard clause, for example on acceptance testing. If the project manager is not present to say “we don’t do acceptance testing the way that clause suggests; there are no testing scripts”, that part of the contract will be impossible to apply.

In another case, the supplier tried to write in a condition that any alleged fault in the software had to be reproducible on its premises for the customer to claim remedy. The technical experts pointed out that this would be impossible as the supplier did not have all the software in the same environment, so the clause was dropped.

Boilerplate text is to be avoided, van Rij says; every contract is as individual as every project.

As an extreme example, he cites one project in the Northern Territory of Australia where dispute over the contract found both parties puzzling over the meaning of the term “attorn to the courts.” “I suspect that the expression is a term … familiar to many but to which counsel and I happen to be strangers,” said the judge. “Counsel were able to do little more than suggest that the words were used because they were on the drafting solicitor's computer program.”

“Check out the specifications and service levels” sometimes expressed deep in the body of the contract, says van Rij. These are often more important than the legal terms and conditions on the front and are often explicitly stated to take precedence over those terms and conditions.

Specifications that are “sketchy or one-sided” can easily create problems, he says.

Careful preparation of the contract can be a valuable way of ensuring all sides really think out what is being supplied and to what standard. Potentially legally binding words like “guarantee” or “ensure” should be used with caution.

But it is wasteful of effort to get tied up in too much detail, van Rij says. “Concentrate on a few essentials, like the aspects that create liability.”

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