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Empowering the IT Team in Business Contracts (Part 1)

Posted 29th June 2011 by Jagvinder Kang, Director

Not enough time — not enough budget — scope creep — are all concepts which at some point get associated with various IT projects. Well it's not just the IT projects themselves that find themselves falling foul of this, but also the associated contracts — as what does not cease to amaze me, is how often technology contracts are rushed.

Often, businesses spend large amounts of time upfront on 'agreeing the commercials' but once the parties are comfortable in 'general terms' with: what is to be provided, the costs and the timeframe; then all hell can break loose on getting the contract finalised and signed within ridiculously short timeframes!

Sometimes there is a perception within businesses, that the legals should be rushed, because the contract will end up in a drawer, never to see the light of day again, unless of course things go wrong (in which event, businesses often wish that they had taken more time during the contractual process to think obligations and consequences through more carefully!).

The legals do however, have a wider purpose than just this - as they also deal with such things as:

  • providing a binding governance structure for the project;
  • ensuring that obligations of both parties are specified with the objective of avoiding ambiguity or disputes between the parties down the line — especially when it comes to scope of obligations;
  • providing for how to deal with changes to scope;
  • providing for timelines, with possible incentivisation for timely performance, of the respective project;
  • providing details of ownership and licensing of intellectual property rights; and
  • providing clarity of charges.

Unfortunately, when a contract is rushed, the value of the above arrangements can be diluted - not by the lawyers, but by the businesses themselves.

The internal conflict in certain organisations, whether SMEs or FTSE100 companies, is that a lot of the above detail which is of real value to an organisation originates from considered discussion by the IT and business teams within an organisation, but this clearly requires time for discussion and drafting, which may conflict with the team members' day job' - this issue is made worse, from a morale perspective, when an IT project involves outsourcing which may result in redundancies or transfer of staff from an organisation to its supplier under employment law (TUPE as it is affectionately known!).

Businesses which bury their head in the sand and think that this conflict can be left to reside and the deal will still get done, are taking risks which can far outweigh the time and cost for getting the arrangements right in the first place.

You may recall in my introductory blog, that I mentioned that I would highlight some of the legal issues related to IT and how businesses' internal IT teams can play an important part in the success of the legal arrangements involving large projects - well this scenario is very much one of them.

The problem that I am alluding to with the above, is that with any complex or high value projects, the 'commercials' and technical requirements are buried in the schedules. These schedules are sometimes mistakenly seen by some lawyers, as something of lesser importance to the front end of the contract itself.

However, it is important to recognise that the front end of the contract will usually be of little value if the schedules are not properly drafted — many of the above benefits of the contract which are mentioned, are usually as a result of the schedule detail, where the initial drafts are produced by the internal IT and business teams (as they are best placed to know what they require from a technical or commercial perspective compared to the lawyers). The legal team is then asked to provide varying levels of reviews and mark-ups of what is in the schedules, but the bottom line is, that they can only work with the material which they have been provided with - couple that with a tight timeline within which the contract needs to often be agreed, and it is a recipe for disaster, if the proper time has not been allocated for schedule production by the respective business.

Hopefully you will have started to understand the importance of the role which the IT and business teams can play with their involvement in the legals. In the next blog we will consider some of the practical things which they can do in this regard.