A lesson from Australia

IT disputes rarely reach court, so when there is a full-blown, judicial examination of the industry's marketing practices, reviewing the case is worth some executive time.

IT disputes rarely reach court, so when there is a full-blown, judicial examination of the industry's marketing practices, reviewing the case is worth some executive time.

Enter RACV v Unisys, in which the RACV (the Royal Automobile Club of Victoria in Australia in its role as an insurer) argued it was entitled to reject an image archive and retrieval system, which Unisys had been chosen to implement for RACV.

The court did not find a breach of contract against Unisys, but instead found that Unisys had engaged in misleading and deceptive conduct under the Trade Practices Act (Australia). This case has great persuasive value in our courts because, on this issue, section 52 of the Trade Practices Act uses the same words as section 9 of New Zealand’s Fair Trading Act.

RACV wanted to replace its paper-based claims management system with an electronic storage and retrieval system that would open up scanned images across multiple office sites/different branches.

A request for proposals was issued in 1992 with system response time requirements. The well-established industry processes were followed, with Unisys responding to the RFP. In particular, and this is what makes the case of great significance to the IT industry, Unisys did not state in its response that it could guarantee the response times. Unisys had, however, provided a demonstration of a system on a series of standalone PCs with archived images on the local hard drives of those PCs.

Unisys was eventually chosen as the supplier for implementation services and RAVC’s IT department agreed to provide business requirements, design and testing.

The system was accepted in March 1995. Shortly after acceptance, the system demonstrated instability. Unisys took steps to fix the system under the warranty provisions of the contract. RACV, however, rejected those attempts and terminated the contract in June 1996.

The court was influenced by the submission that, essentially, Unisys was paid to do something and RACV had nothing to show for it. The court was also strongly influenced by the implied representations in the demonstration and held that Unisys had made representations to RACV that Unisys would provide a system that (as demonstrated) would have the response times stated in the RFP.

Unisys argued that the changes of scope, qualifications in the RFP response, independent advice of RACV’s own consultants, (non)involvement of the customer and acceptance of the system should have been influential in the case.

On the evidence, the court found in favour of RACV and Unisys was ordered to pay $2.4 million in damages and interest.

Reading the judgment it is hard not to feel some sympathy for Unisys. The judgment has a detachment from the realties of the risk environment of major projects.

Sympathy is, however, not going to reduce the supplier’s risk.

The lesson to be learnt from the case is that suppliers need to reconsider the traditional responses to RFPs.

Responses and qualifying-out will need to be more specific. Qualifications and disclaimers should not be "buried". The old, time-worn general statements such as "we understand/are able to meet your business needs" in RFP responses should be binned. These statements have been determined to mislead, so should be avoided.

Finally, comprehensive risk identification and risk engineering responsibilities sections in the vendor's response are the key weapon for the vendor to be able to say, post-contract, who was expected to take what risk.

Horrocks is a partner and Woo a solicitor in Clendon Feeney’s technology law team. This article, together with further background comments and links to other websites, can be downloaded from www.clendons.co.nz. Questions and comments can be sent to craig.horrocks@clendons.co.nz.

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