Contract Terms and Conditions:One should ensure that appropriate specialists deal with the detailed terms and conditions. You should be using either contract lawyers or a specialist unit within the organization. They should have experience of the type of relationship you are dealing with – for example, not all lawyers will be familiar with the pitfalls in contracting for packaged software.

Buyers and sellers usually have differing views on what makes a good deal.

The buyer’s dream deal?

The supplier will provide everything the customer wants or needs, whether or not they thought of it or subsequently change their minds. The supplier will ensure all things work perfectly, whether or not the supplier provided them, and that the overall solution will do everything the customer wants or needs both now and for an indefinite period into the future. All employees of the supplier are available 24 hours a day to provide assistance and advice on any matter at no additional charge. Unlimited training will be available from the supplier for an indefinite period. The supplier hereby assigns full ownership and intellectual property rights in all items provided during the course of this relationship. The customer may make copies of all materials supplied and provide these to anyone as they see fit. Any initial limits on usage cease to apply after the contract is signed. The customer need only pay what they want to at whatever time they feel is appropriate, and only when every element of the contract has been accomplished to perfection.

 

The seller’s dream deal?

The supplier undertakes to make some effort to meet the customer’s needs but cannot commit to anything. Items supplied are not necessarily fit for purpose or of merchantable quality. The customer accepts that an undefined number of faults will inevitably be contained in the delivered items, and that the supplier can in no way accept responsibility for these. The supplier is not obliged to remedy any faults nor provide any compensation for anything whatsoever. Prices charged for the initial items delivered may be increased at any time. Any discount offered only applies to the initial items delivered. Further purchases and recurring charges for licenses, services, etc. will be charged at the full list price at the date of renewal. Charges for any item the customer forgot to specify or requires in the future which cannot be obtained anywhere else will be charged at a special surcharge above standard list price. The customer is hereby deemed happy and will be featured in marketing and publicity materials.

The detailed negotiation of contractual terms can be unexpectedly frustrating and time consuming. It is easy to underestimate the time and resources required. With significant contracts, it is important to get it right. You might take a softer view for minor contracts, e.g. hiring a contract programmer for three months, but, even then, you need to make sure the contract is sound. Would you want that contractor to claim that he owns the software he wrote?

Vendors often have standard contracts. If you wish to negotiate different terms, it often involves lawyers from both sides. Your organization may have standard purchase contracts. This can be the recipe for the most frustrating and time-consuming legal negotiation.

The list below illustrates some of the types of issue, which should be considered when negotiating contracts for the supply of computer hardware, software, and services. It is not intended to be a definitive or complete list. Parties negotiating contracts should always consider the terms and conditions in depth and obtain appropriate legal advice. No liability whatsoever can be accepted for any errors or omissions in this list nor for any adverse consequences of using it.

Contract Attachments – various pre-contractual documents and statements may be explicitly or implicitly included in the contract (make sure their status is clear)

Word cloud tags concept illustration of supply chain management

  • Vendor correspondence
  • Vendor literature and advertising
  • Notes of meetings between vendor and client
  • Materials from vendor demonstrations, such as output reports
  • Systems specifications
  • The vendor’s financial statements
  • All responses and other materials completed from the Request for Proposal (RFP), including the completed system requirements
  • An Implementation Plan identifying the tasks to be completed, the assigned responsibilities and the scheduled completion dates
  • Stated usage of named sub-contractors and specific named employees
  • Other vendor representations

Terms of Agreement

  • Initial terms
  • Optional terms
  • Renewal terms
  • Relationship with vendor’s sub-contractors
  • Terms and conditions for transfer of personnel (e.g. with outsourcing contract)

Deliverables

         Design

         Hardware

         Networking provision, connectivity, ISP, portal connectivity

         Access to servers and facilities not owned by the client

         Software / programs

         Source code

         Programming and data standards (e.g. language, database, XML)

         Modifications

         Custom programming

         Application / transaction / business process outsourcing / facilities management services

         Supply of data and information

         Consultancy

         Support services

         Introduction of trading partners, suppliers, customers etc.

         Documentation

         Training

         Enhancements and updates

         Initial support and maintenance

         Continuing support and maintenance

         Backup, recovery and disaster recovery provision

         Access to information and electronic support services

Delivery

         Timetable

         Delays (constituting contract default)

         Price reduction or penalty for delays (liquidated damages)

         Actual-cost damages for defaults (and any limit applied thereto)

         Trial periodcontract-management-12

Acceptance Criteria

         Thorough test data

         Functional tests

         User Acceptance Tests and criteria

         Integration tests and compatibility with connected systems including those of other partner organizations, customers and suppliers

         Performance tests

         Reliability tests

         Throughput / transaction times

         Run time

         Computer resources required

         Efficiency

         Standards of continuing performance

         Acceptance period

         Terms for operation where there are outstanding problems and no user final acceptance

Use and Ownership of Software, Hardware and Services

         Unlimited use

         Use by or extension to associated companies in same group, outsourcers, sub-contractors, customers, suppliers, other third parties

         Use and ownership of software on transfer of the business to new owners

         Ability to assign rental, maintenance and service contracts to new ownerscontract-management-15

         Continuing use of systems and provision of services if the business is placed into administration due to insolvency

         Upgrades and portability of software for client’s future use

         Ownership of software customized to client’s specifications

         Client’s right to modify software package

         Effect of refusal of future modifications if unacceptable

Source Programs

         Access by client and sub-contractors to source programs

         Undertaking to maintain open source

         Source code and program documentation in escrow

Installation and Training

         Timeframe of installation

         Amount of disruption to client’s operations

         Minimum hardware and software configuration to be provided by client for vendor’s hardware and software to operate upon or in conjunction with

         All appropriate education required by client to successfully implement and operate system

         Period of time that training will be available

         Training location

         Training costs

         Training curriculum

         Facilities required to provide training

Support and Maintenance

         Amount and nature of implementation support at no additional cost

         Cost of annual maintenance

         Guaranteed prices and nature for specified period

         Starting time for maintenance (e.g. after warranty period)

         Support the vendor can provide in the event of a disaster

Warranties of Vendor

         Commencement event of warranty period (installation, acceptance, etc.)contract-management-16

         Suitability of software for client’s requirements

         Compliance with legislation and regulatory requirements (e.g. accounting standards, employment legislation, data privacy / protection, use by the disabled, access to data by authorized public bodies)

         Capacity to handle stated volume of transactions

         Ownership of software and hardware

         Vendor’s right to license software

         Assurances regarding infringement

         Period of time vendor will keep software operational

         Correction of malfunctions

         Willingness to allow changes in the specifications or deliver additional items (subject to agreed terms and charges)

         Equipment configuration required for software

         Vendor’s commitment to software and/or hardware maintenance

         Guarantee of support availability

         Service levels

         Call out times

         Escalation procedures

         Items explicitly or implicitly included or excluded from warranties (does itemization of included items imply exclusion of anything else – “reverse limitation”)

         Definition of basis for compensation and limits applied (e.g. contract price, actual damages, liquidated damages, capped limits, fault / no-fault, force majeure, opportunity to cure, time and notice requirements)

         Definition of limits of accountability where parts of the overall solution are provided by the client or by other parties

Client’s Rights and Safeguards

         Right to reproduce or otherwise make available reference documentation

         Right to disclose software to others

         Right to rescind agreement at any time prior to acceptance of system

         Right to terminate agreement, optionally with agreed notice period or at defined break points

         Right to transfer software with sale of computer

         Right to modify software

         Right to merge software into other program material

         Right of assignment

         Right to outsource

         Product liability insurance

         Performance bond

Confidentiality

         Client data

         Client’s business methods and trade secrets

         Vendor-related information that is subject to non-disclosure

Infringement Provisions

         Vendor defends any suit brought against client

         Vendor pays costs and damages

         Vendor replaces infringing software

         Vendor indemnifies client for losscontract-management-14

Events Constituting Default

         Failure to deliver

         Failure of software or hardware to perform according to specifications

         Unreliability of software or hardware

         Failure of vendor to correct malfunctions within an agreed-on time period

         Failure of vendor to provide support services

         Bankruptcy of vendor

Default and Malfunction Remedies

         Termination of agreement

         Recovery of damages for costs incurred

         Liquidation of damages

         Refund of money paid and costs incurred

         Replacement of software or hardware by vendor

         Repair of software or hardware by vendor

         Payment by vendor for cost of repairing or replacing software or hardware by others

         Downtime credits

         Backup facility in the event of malfunction

         Time to correct malfunctions, which extends the warranty period

Price

         Fixed cost

         Time and material costs

         Rental basis

         Pricing basis and parameters e.g. per “seat” / by processor size / per transaction or event

         Optional and call off-charges (e.g. consultancy advice per day)

         Pricing of subsequent variations to the contracted specification and other additional work

         Renewal costs

         Other charges

         Quantity discounts (e.g. multiple or subsequent installations, reduced day rates after given number of days)

         Agreed discounts apply to which prices and charges (e.g. all elements discounted by agreed amount, or only the basic price is discounted with other charges based on full standard price)

         Price protection for future enhancements and support

         Pass through of future price reductions

         Pricing for upgrades or trade-in’s

         Lease payments applied to purchase

         Charges or penalties for early termination (in the absence of default)

Payments

         Fixed dates

         Progress payments based on defined acceptance criteria

         Credit for delays

         Refund of money if agreed-on situation occurs

         Holdback

         Periodic payments and royalties

         Maintenance fees

Taxes

         Liability for taxes

         Place of contract – country / state taxes that apply

         Tax credits

Client-Vendor Relationship

         Vendor’s status (e.g. independent contractor, not employee of client)

         Risk and reward sharing

         Vendor and/or third-party funding of capital requirements

         Creation of new legal entities to manage joint-venture relationships and partnerships

         Prohibition against assignment by vendor

         Prohibition against sub-contracting by vendor without client’s consent

         Continuity during dispute

         Personnel recruitment policy – anti-poaching agreement

         Use of client’s resources by vendor – e.g. office facilities, access to site, computers, software

Other Considerations

         Free trials or demonstrations

         Compensation for assisting vendor in developing or testing software

         Intellectual Property Rights – who owns anything created for the client (e.g. source code, text, images, information)

         Publicity and endorsements, e.g. right to refer to other party’s name or situation in published materials

         Confidentiality during disputes / commitment not to make derogatory public statements

         Arbitration

         Termination procedures

         Terms and conditions for subsequent transfer or return of outsourced systems, personnel and services on termination of contract

         Inclusion of all side agreements in contract