Nowadays, almost every company enters into IT contracts on a regular basis. Think of licenses for the use of certain software, contracts for the development of a custom application or for the development of a web shop. A company is often highly dependent on the functioning of the software, app or web shop, while the development or license often involves significant costs.
This makes it extra important to look carefully at the content of the contracts being entered into. What exactly must be delivered, at what time and at what price? And what about security, possible malfunctions and software maintenance? In this blog, Valerie Lipman provides six tips for concluding an IT contract.
Tip 1: Make sure it is clear what requirements the software must meet
First, it is important to clearly define exactly what is being delivered. This seems like an open door, yet in IT contracts it is far from always immediately clear. For example, what functionalities must the software have?
Standard vs. custom software
In contracts related to standard software, this can be clearly defined in advance. But this is often different in contracts involving custom software. It is not always clear in advance what is possible and which functionalities can and cannot be developed. In such situations, work is often done in an agile manner, in which it is determined in several sprints what the software will look like.
In this way, the actual possibilities become clear only after the agreement has already been concluded and development has begun. However, certain minimum requirements may possibly be established in advance.
In addition, it is important to agree on interim evaluations so that timely adjustments can be made if a development does not seem to be going in the right direction.
Effort obligation
Moreover, an IT contract often includes a best-efforts obligation for the IT supplier, not a result obligation. This means that the IT supplier does not have an obligation to deliver a certain result, but only has to make an effort to achieve a certain result.
From the perspective of the IT supplier, this is understandable, but on the other hand, the customer has an interest in an obligation to achieve a result. If a best-efforts obligation is agreed upon, it is extra important for the customer to look at the possibilities the contract offers in case the development does not go according to plan. For example, can the contract be terminated early? And what about the costs that have already been incurred?
Tip 2: Make clear agreements about costs
A common point of discussion in software development is the amount of associated costs. This discussion is related to the question of what exactly is being developed. If that is not clear in advance, often the potential costs are not precisely known either.
If it is not possible to agree on the final costs in advance, it is advisable to at least work with interim budgets and ensure that the costs to be incurred are reconciled as much as possible before the work is performed.
This should then also address what the consequences are if the parties cannot ultimately agree on further costs. For example, may the buyer then engage another party to continue the development?
Tip 3: Check whether a completion date has been agreed upon and what the consequence will be if it is not met
IT contracts often do include a specific time schedule for the date that the software must be put into use. However, if only a time schedule is included with a Go Live date, this is not yet a deadline. This means that if this date is not met, the IT vendor must first be given an additional deadline to still deliver the software in accordance with the agreements made.
Only if the IT vendor still does not deliver a working product by then can the contract possibly be terminated or a claim for damages be made. So it is important to make clear the consequences of not meeting a certain delivery deadline.
Tip 4: Check who owns the intellectual property rights
The source code of software or its external design can be protected by copyright. Under the law, copyrights in principle rest with the creator of a particular work and thus with the IT supplier.
If no agreements are made about the transfer of copyrights, the IT supplier remains the rightful owner. This means that, for example, the software may not be further developed without the IT supplier's permission.
In addition, it could be the case that the IT vendor could terminate the right to use the software.
Tip 5: Check who is responsible for security, maintenance and backups
Given the confidentiality of much company data, software security is essential. It is therefore important to define in IT contracts who takes care of security and, for example, backups.
If this is not arranged, the question is who is liable if company data is lost or out on the street. Maintenance agreements are also important in this context. Does the IT supplier take care of that or does the customer, for example, have its own obligation to perform updates? And within what time must an IT supplier respond if there is a malfunction?
Tip 6: Check contract term and obligations upon exit
Contracts for the development of custom software will often continue at least until the software is delivered. But if a license is granted for use of the software, it could be the case that the IT vendor can terminate this license after a period of time or under certain circumstances. This could lead to problems in the event that a company is highly dependent on certain software, for example, if the software is the basis for other systems.
No automatic renewal
For example, if the agreement has a term of one year, with a possibility of renewal, it cannot simply be assumed that this renewal will take place. In any case, it is important to ascertain what period of time would be needed to switch to another supplier and to agree on a sufficiently long notice period for this purpose.
Consequences after end of contract
Next, consider the consequences of termination. A software application often stores a large amount of data. It is generally important to maintain access to this data if the switch is made to another system.
In addition, a switch often involves the necessary work. It is therefore important to agree in the IT contract on mutual obligations in the event of an exit and migration to another system. For example, this may require the help of the IT supplier.
Are you about to enter into an IT contract? We would be happy to look at it with you to determine whether your interests are adequately safeguarded. Or have you already concluded a contract and want to know what your rights are? We would also be happy to advise you on this. Please contact Valerie Lipman using the form below.
