Rooftop Housing Group’s investment in a technologically innovative, customer-focused IT system proved to be the perfect opportunity to review procurement best practice – before negotiations had even begun.
Having been instructed to advise them on their commercial contracts with their IT supplier, we started the process by considering which key issues needed to be resolved before the contract discussions began in earnest and which would ultimately help to ensure the successful implementation of the system. From many years’ experience of carrying out contract negotiations, we are only too aware how insufficient preparation can negatively impact the process and, sometimes the final outcome.
Transformation and integration assistance.
The transition from the old system to the new one is a major undertaking and often overlooked in the desire to crack on with the project. With your IT supplier’s help, you should consider how to introduce the new system into the business with minimal disruption. Transferring customer data (if relevant) is a good example of a particularly sensitive issue which must be handled carefully under Data Protection legislation. An implementation or transformation project plan, with timescales and milestones, is a convenient way to track progress.
Project plans- milestones and delays
Both you and your supplier should agree a comprehensive project plan at the outset with timescales for each stage. This considerably improves your chances of hitting the ‘go live’ date. Even if all the details cannot be included at the beginning of the project, an outline plan will suffice with a commitment to review and update at regular intervals.
Remedies for missing the milestones dates in the project plan should be included in the contract. Although bringing a claim for damages is rarely practical, including liquidated damages is advisable. This enables you to require the supplier to pay the specified amount or to deduct it from the next invoice payable. Likewise, if the system does not ‘go live’ by the long stop date you should be able to terminate the contract and be refunded any charges paid.
You should ensure that acceptance tests are performed on the system prior to ‘go live’ and that you are involved in both the tests and the criteria governing them. Furthermore, you should consider withholding a percentage of the system cost until you have issued an acceptance certificate confirming their satisfactory completion.
Service failures (service levels and service credits)
At the beginning of the process, you should consider what standards you require for the performance of any services. Regardless of who, if anyone, provided the services prior to the new contract, it is important that current service standards are maintained – although this is a good opportunity to increase performance levels. Consider applying service credits which can incentivise your supplier to meet your specified service levels - although these credits should be fairly set and not run the risk of being unenforceable.
Transfer of undertakings (Protection of Employment Regulations) 2006 (“TUPE”)
It is unlikely that the procurement of an IT system will involve the application of TUPE to the services but it is something you need to be aware of. The contract should expressly include the position and obligations/indemnities of each party in the event that it does apply, as TUPE is a Regulation which, if applicable, will apply regardless of what the contract actually states.
Data Protection and the GDPR
As you will probably need to provide your supplier with various forms of personal data as part of the performance of the services, the contract must include sufficient and appropriate data protection clauses. In particular the General Data Protection Regulation, due to come into force in May 2018, places various obligations on both data controllers and data processors in respect of the protection of personal data: the fines for a breach of the GDPR will be substantially higher than those under the current legislation.
Your contract should include suitable warranties in relation to the goods or services which are being procured. This may include warranties that the goods and services comply with a ‘Specification’ which details their various requirements. The contract should also include any agreed warranty periods and an obligation for the supplier to remedy any breach of any the warranties, which may include replacement of goods and/or re- performance of services.
Indemnities and liability
Indemnities and liability are usually the subject of intense negotiation and thus are often the final clauses to be agreed. It is strongly recommended that you seek legal advice to understand the risks and implications of these clauses. The supplier should provide appropriate indemnities for the services to be performed and you must ensure that they are not limiting their liability so that should a breach occur, the amount of liability and the types of losses you are able recover are minimal. Consider your financial risks if things go wrong.
Termination clauses should specify when and how the contract can be terminated and under what notice period. It should include standard circumstances including material breach, insolvency and liquidation as well as where there is a change in the control of the supplier, breaches of critical service levels and possibly also for convenience. The consequences of termination should also be addressed, including the supplier’s obligations to provide termination assistance services for a certain period, transfer and ownership of data and intellectual property rights and licences which should continue post-termination.
Change control procedure
The contract should include a ‘Change Control Procedure’ which addresses how required changes should be handled over its lifetime. This sets out the procedure for requesting changes, the timescales for considering the changes and the effects of the change.
Both you and your supplier need to consider how, and by whom, the contract should be managed for its duration, including details of meetings and service reviews. This helps to manage expectations and improve communication, thus reducing the risk of a dispute arising.
Depending on the nature of the goods and services being provided it may be appropriate for the supplier to prepare a disaster recovery plan so that the services can be performed in the event of a disaster. The supplier may already have such a plan in place but you should consider any particular requirements, in particular security.
This is only a brief look at the pre-preparation work that can help to ease the path of a major technology implementation project. Obviously each customer will have specific requirements which will need to be factored into the detailed contract negotiations. Advance planning will help to avoid potential pitfalls as you progress through the process as well as saving considerable time and cost.