The Importance of Clear IT Contracts

Meet the team:

Share this post: linkedin Twitter facebookshare Email
Posted in:Corporate and Commercial|April 14, 2011 | Join the mailing list

A recent case in the High Court demonstrates the importance of clear and accurate agreements when buying a new IT system.

In the case of London Borough of Southwark v IBM, Southwark bought a new data management system which involved both IBM software and third party software.

The contract with IBM comprised a framework agreement and order. The order stated that the warranties relating to the third party software, were the responsibility of the third party and also excluded any implied fitness for purpose warranty. The framework
agreement stated that there was a warranty as to satisfactory quality and compliance with specification.

The software was installed but the project became delayed and was ultimately terminated. As a result, Southwark claimed against IBM. It asserted that the third party software was not of satisfactory quality. Compliance of the software with the specification
however, was not at issue.

The claim was dismissed on the basis that all that was required in accordance with the wording in the agreement, was software conformity with the stated specification and that that was the meaning of "satisfactory quality" in the context of the contract terms.
The court found that the application of statutory implied terms would be contrary to the written agreement.

The case clearly shows the importance of setting out in writing, any expectations which customers have when buying a new IT system.

In this case, the court made very clear that it was reluctant to imply any terms and that the written provisions alone governed the relationship between the parties. In the context of those written terms, a warranty of satisfactory quality did little to increase
IBM’s obligations. This makes it all the more important, when purchasing IT, to ensure that any warranties about the system and software performance are set out expressly in the contract and that the agreement includes a very clear description about how the
system is to perform by way of an output-based or performance specification. The contract should also take account of changes to the system which are required over time. Doing this at the outset can help avoid costly disputes in the event that IT systems fail
to perform and customer expectations are not met.

For further information about dealing with IT system contracts, please speak to Luisa D’Alessandro.

Join our mailing list

More from berg


"The advice I received from berg was practical, clear and useable, with their communication being clear and concise"

Neil Waddington, Managing Director, Prospect (GB) Ltd

"I have been hugely impressed by the common sense approach taken by the entire team as well as by their hard work, good humour and superb advice."

Keith Black, Regatta