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2 IT Law for Non-IT Lawyers ACC Webinar on 8 September 2015 Nick Holland

3 1. Takeaways After Today s Presentation An overview of: Different types of technology-related agreements Common Commercial Structures Aspects of IT contracts that are typically highly negotiated

4 2. Variety of IT-related contracts Simple Services (e.g. consultancy, hosting, software/ hardware maintenance etc) Complex Services (e.g. outsourcing) Project Services (e.g. software development) Technology transfer/licensing, often with a strong element IP licensing SaaS; PaaS Digital media-related contracts

5 3. Commercial Structures Time and Materials (T&M) - service provider invoices the client based on our delivery team s time performing the services and a rate per hour or day. Fixed Fee - fixed fee is a stated contractual price and the price is not subject to adjustment other than where specifically so agreed under change control. Milestone-Based-Pricing pricing arrangement where the service provider will earn fees based on achieving certain project milestones as defined in the agreement. Transaction Based-Pricing - transaction volumes for the system or business process developed, implemented, or operated determine the service provider s fee. Value-Based/Benefits-Based Pricing - contingent pricing arrangement where the value realized by the client as a result of the services at least in portion determines the service provider fees.

6 4. Common themes Scope, Scope Creep and Change Control Clearly defined responsibilities Acceptance testing Change control Mitigating against non-delivery (sticks and carrots) Risk apportionment: liability and indemnities Ownership and licensing of IPRs Exit Data protection Compliance with laws Governance

7 5. Scope, Scope Creep and Change Control Essential that the contract clearly defines the scope of the Supplier s obligations (particularly in fixed price arrangements) Change Control - a formal process to ensure that all service or financial changes are approved and signed off by the parties before implementing the change Abuse of change control by service provider? Client changes or delays will impact scope, schedule and delivery costs? Failure by parties to follow change control process Ø Consistent application of change control process is key to enabling informed client project decisions and avoids unintended scope creep

8 6. Clearly defined responsibilities and obligations Applies to both Supplier and Customer obligations Customers will often press for their responsibilities to be expressed as dependencies rather than obligations : Customer failure to meet an obligation = breach Customer failure to fulfil a dependency = Supplier is relieved of liability to the extent that Supplier breach is caused by the Customer s failure.

9 7. Performance Incentives (sticks and carrots) Hold Back Client retains and holds back a percentage of the total contract price until a pre-determined period of time or event following final sign-off. Liquidated Damages (LDs) or Service Credits contract provision setting out a pre-determined amount (or a predetermined formula for calculating the amount) payable in the event of a breach. Expectation of no future work ( break options and initial terms ) CEO attendance Threat of termination Threat of de-scoping Step-in rights

10 7. Limitation of Liability Limitation of Liability (LOL) contract provisions placing a limitation (i.e., cap) on each party s liability exposure associated with performance or receipt of services under the contract. Client Service Provider Shift delivery risk and liability as its service provider Seek unlimited liability or very high limit of liability Create significant leverage Reasonable correlation between risk and reward Limit responsibility for those damages directly caused by service provider s failed services Object to taking on consequential damages

11 8. Limitation of Liability Common Final Positions 12 months of trailing charges (outsourced services) An amount equal to the total fees (IT project) Recoverable losses capped per calendar year Cap per claim/occurrence Separate caps for different types of loss/damage

12 9. Indemnification Indemnification - a voluntary promise in a contract to compensate another party against losses suffered as a result of a third party claim. Client Obligate service provider to compensate client for losses from anticipated situations, including breach of contract or third party damages May equate indemnity to insurance Seek alternative recovery right in addition to breach of contract Service Provider Provide indemnity against liabilities from third party claims to the extent service provider can control the risk and liability Avoid indemnity for general situations (e.g., breach of contract or any third party damages) Avoid responsibility of an insurance underwriter

13 10. Indemnification Indemnification: Common Final Positions Unlimited indemnities for personal injury, death and tangible property caused by negligence, taxes, employment claims and IP Infringement Scope of IP indemnity often contentious IP Indemnity if IP is assigned to the Customer Alternative: apply a separate higher cap to specific indemnity claims.

14 11. Acceptance Acceptance - process where client will review, inspect or test the deliverables Accenture develops and, as a result, accept or reject such deliverables. Client Longer acceptance period to review and test deliverables No deemed acceptance Concerned about missing a problem during review and/or testing process Service Provider Shorter acceptance periods to keep project on timeline Acceptance by client provides certainty Avoid project delays

15 12. Acceptance: Common Final Positions Acceptance: Common Final Positions For interim deliverables, generally shorter acceptance periods considering the project timeline For final solution, longer acceptance period enabling completion of final review and user acceptance testing Typically, solution is deemed accepted if client decides to deploy the solution into production prior to completing acceptance testing and defects are corrected in warranty period

16 13. IP Ownership IP Ownership describe who owns the rights to the work products or deliverables developed on a given project or engagement. Client Safest to own all IP rights Should own the deliverables because it paid for them Service Provider Provide to client broad enterprise-wide rights to use in its business Exclusive ownership by one client is potential restriction on its business or practice Tools and pre-existing IP must be unrestricted

17 14. IP Ownership: Common Final Positions Each party retains ownership to its pre-existing IP and any enhancements or modifications to it In traditional projects or outsourcing, client owns the net new deliverables In new technology advancements (e.g., digital offerings), service provider is retaining ownership to the IP Customer ownership of newly created IP may come at a premium.

18 . Compliance with Laws ompliance with Laws describe each party s responsibility with respect to any applicabl ws, regulations and rules, and the process for making changes to the contract if there is a hange in law that impacts the project or engagement. ient rvice provider should be compliant with laws when performing the service Service Provider It will be compliant with laws applicable t its business but client is responsible for laws applicable to its business rvice provider will change its service if ange in law impacts that service It will change its services to accommodate changes in laws to its IT services but parties will agree on change control for changes in client laws Client will give direction to it on how clien complies with laws applicable to client s business

19 15. Compliance with Laws: Common Final Positions For IT projects, each party is responsible for the laws that are applicable to its respective business Service provider will follow direction or guidance from client on laws applicable to client s lines of business Apportionment of costs arising as a result of changes in law is often contentious.

20 16. Data Protection Data Protection describe each party s responsibilities with respect to protection of the other party s personal data. Client Service providers using personal data should be responsible for breaches or unauthorized access incidents Service provider may have better processes and protections than the client itself Service Provider Parties should agree on protective standards and client should provide direction for applicable data privacy laws Liability for confidentiality of business information is different than liability for personal data

21 17. Data Protection: Common Final Positions Final positions vary greatly Many US service providers demand caps on liability Clients and service providers agree that certain damages are considered direct damages Europe: EU wide privacy framework Reach of EU privacy law depends on the "data controller's" place of establishment or location of processing equipment EU - country of origin principle Control of transfers of personal data to outside of the EU

22 18. Exit Planning Issues to Consider: Robust exit plan and obligations on the incumbent Identification and treatment of assets Handover of information on service specification/service management Knowledge transfer Assistance during the transition period Continued provision of the current service Transition Costs TUPE Due diligence by incoming vendor

23 19. Commercial Guidance Governance - a formal process for timely and successful identification and resolution of operational and commercial risks and issues. Deal with issues efficiently, amicably and fairly Effective governance structure

24 20. Conclusions Whilst there are IT terms and sector knowledge is important, many IT contracts are simple commercial agreements SLA s, Scope creep, service credits and data privacy are key areas in any IT contract

25 Contact Nick Holland Partner - London Fieldfisher E: nick.holland@fieldfisher.com T: +44 (0) M: +44 (0)

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