The Importance of Carefully Drafted Contracts to IT Systems Development

Written by Margaret Briffa | July 28, 2012

IP Contracts

IT Development Contracts from Hell

Many IT developers commence IT systems development work for clients, be it software systems development or web application development, on the basis of their standard IT development contract. This contract may not be legally drafted and when an IT development project hits bumps in the road the absence of a comprehensive and carefully drafted standard development contract is often bad news for an IT developer.

A good contract serves not only as a point of reference for the parties involved as to their contractual rights and obligations, but also as a useful practical aid to resolving disputes which may arise during the course of a project and avoiding their escalation.

The case of GB Gas Holdings Ltd v. Accenture (UK) Ltd, highlights the crucial importance to any IT developer commencing IT projects with clients to ensure that they have a properly drafted standard contract with their clients. In the GB Gas Holdings case, British Gas commissioned Accenture to develop, deliver and install an IT system for managing customer billing. They entered into a contract based on Accenture’s standard development contract for the project. The project, like many IT development projects, was complex and proceeded in various stages. Accenture promised under their contract that later stages would not affect the functionality of the previous stages. These contractual promises and the effect of Accenture’s failure to keep to them were very vaguely dealt with in the contract. A large number of bills produced by the system were incorrect requiring staff to manually amend them before they could go out. British Gas had to employ a large number of temporary staff to deal with these defects.

Owing to the vague nature of the terms of the Accenture contract this kind of foreseeable problem was not dealt with sufficiently; in particular whether or not a series of minor faults taken together would ex-employees constitute a serious breach giving rise to a right to compensation was not addressed at all by the contract. Accordingly, the Court found in favour of British Gas and against the developer Accenture finding, amongst other things, that Accenture’s contractual terms were too vague on this point and so the reasonable conclusion must be in favour of the aggrieved party.

Benefits of a lawyer drafted IT contract

A well drafted IT development contract  covers key issues including:-

  • delivery dates and payment for the project
  • very clear wording with respect to what might go wrong
  • attempting to pre-empt potential problems in complex development projects.
  •  controls on liability so that in uncertain situations so that, for example as shown in the GB Gas Holdings case, lots of minor problems can’t be allowed to add up to a big liability for a developer unchecked.

The ideal is to have a clearly drafted contract which plainly outlines a structure as to what process the parties agree to take to resolve the situation in the event of a range of unforeseeable problems arising.

It is advisable for IT developers to have their standard development contracts properly legally drafted, so that their position on liability is well protected and that negotiation with clients over contracts for development projects start on good foundations.

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