Contract Review

This is part of the sub-web covering Selecting ERP, and other Application, Computer Systems. To go to the overview of this sub-web, please click Overview. To go to the web-site home page, please click Home.

General Considerations

Everything set out on this page reflects the situation under English Law. Many of the principles, however, should still apply in other jurisdictions.

Computer industry standard terms and conditions of contract are notoriously one-sided. The objective is to ensure that they are fair to both parties and it is recommended that negotiations on contract terms and price should be conducted together. On the subject of price do not forget that items, which the supplier has to buy in, carry a lower margin than items, such as bespoke programs, which he 'manufactures'. As an example, the margin which they get on equipment or, as an agent for a major software package, is commonly around 30%, so don't expect to negotiate more than 10, possibly 15, per cent off that. Conversely standard 'packaged' programs, and associated modifications, which the supplier develop themselves, and hopes to sell to other customers, could be heavily discounted.

Whilst there are a number of model contract terms available, and which the nearest decent reference library should have, we recommend that, before asking a solicitor to agree the final wording, the customer should ensure that the following points are seriously addressed:

- the supplier guarantees to meet all the requirements set out in the specification, as clarified or changed by specific subsequent documentation, which must be appended to the contract;

- there is an 'Escrow' clause on the software, ensuring that the customer has title to it if the supplier goes bankrupt;

- payment is made in stages with the last payment reserved until the complete system has been working for at least one month;

- the contract includes a warranty clause ensuring that the equipment will do what it has been specified to do, or will be replaced, at no cost, for a specific period. Whilst the author would like it to be one year, the industry practice is three months;

- should a significant part of the system, whether equipment or software, not have been delivered, or be working properly, within a reasonable period, which should be specified, then the entire contract is void and all monies will be returned

- a maintenance contract should be provided and the costs for the first year should reflect the free warranty period;

- the customer decides whether they want an arbitration clause. If so, they could specify the President of the British Computer Society as the person to nominate an arbitrator.

Possible Clauses

Many topics have been addressed in computer contracts and some of the following may be worth considering:

- The Premises, including Preparation and Provision, and Access;

- Mistakes in Information;

- Patents, Designs and Copyright;

- Assignment and Sub-letting;

- Liability for Accident and Damage;

- Force Majeure;

- Ownership;

- Statutory and Other Regulations;

- Confidentiality;

- Publicity;

- Software Security;

- Warranty Period;

- Maintenance;

- Attachments to the Equipment;

- Training;

- Manuals;

- Testing;

- Acceptance;

- Bankruptcy;

- Escrow;

- Termination;

- Delivery Dates;

- Delays in performance;

- Changes and Cancellations;

- Period of Service Availability;

- Charges and Payments.

Wording for each of these topics is available from a variety of sources. If you have problems, please contact us.

Important Warning

If the customer gets the wrong contract conditions, it is very difficult to change the situation later. It is important that the contract is reviewed by a solicitor and the customer negotiates the contract at the same time as the price and the implementation plan. This is when they have most negotiating power. They should use it.