What clauses should you include in an IT goods and services agreement? That depends on whether you are supplying bespoke software, off-the-shelf software, printers (and printer management services), helpdesk, hardware and the many other kinds of IT goods and services.
The last 20 years have seen rapid growth in the Information Technology (IT) industry. It is an industry that is always evolving and developing at a very fast rate, which is what differentiates it from other industries. IT goods and services are technology agreements that include consulting services, managed printing services, or cloud services, amongst many other things.
While IT goods and services agreements are commercial agreements at their core, it is important that IT agreements reflect the unique nature of the industry and the goods and services being supplied, by including terms that address the specific requirements of the transaction.
This article sets out the clauses that you should include in technology agreements.
An overview of an IT goods and services agreement
Aside from the usual clauses normally found in technology agreements, an IT goods and services agreement is generally structured to include:
- A description of the software (including the version)
- An obligation on the software provide to update, fix and provide support services for the software
- Performance standards, for instance, to address a level of acceptable downtime for IT goods supplied under the agreement
- Liquidated damages or invoice credits if the service provider fails to comply with the IT goods and services agreement
- An obligation on the IT goods and services supplier to “transition in” and “transition out” and, for that purpose, coordinate and cooperate with existing providers
- A requirement for the IT provider to ensure they keep parts available at their warehouse to enable machinery to be quickly fixed
- A requirement that the customer provides timely information, data and access to its IT systems to enable the IT service provider to carry out its services and supply the goods
More than likely, technology agreements will be focused on the provision of goods and services based on the intellectual property of one party being given to another. It could also be that as part of the agreement, the parties will develop new intellectual property, and the logistics of that new intellectual property need to be ironed out.
For that reason, a clause on intellectual property in an IT goods and services agreement is a must. In this clause, there are a few things you should address, including:
- Clarify who owns the intellectual property if intellectual property is developed as part of the services supplied under the contract
- That the contract provides the requisite level of protection to the party who owns that intellectual property, for example, what are their rights if the other party infringes upon their intellectual property rights
- Inclusions regarding what rights the purchaser has to use the IP. Is it a licence to use for a specific project or generally, for example
- Restrictions from the purchaser modifying the intellectual property, or creating their own products on the basis of and commercialising the intellectual property provided
Further, depending on the type of IT goods and services being provided, it may be the case that off-the-shelf software is being incorporated into or interfaced with developed software. Both parties need to make sure that they don’t unintentionally infringe upon the software licence terms of any off-the-shelf products.
Information that parties receive in the course of doing business in the IT industry may be of high value and may include knowledge of the intellectual property being developed.
For example, that information could be worth large sums of money and/or it could be the basis on which one party’s business is built. For this reason, technology agreements need to include a watertight clause on confidentiality.
Parties need to be sure when they enter into a contract, that the information they are sharing is confidential and for that reason needs to be kept safe and secure. You may also want to consider any cyber security or information storage requirements in relation to confidential information.
Confidentiality clauses may include specific details like the type of information that is included in what is considered confidential (for instance, oral, written, formal, informal) or who is allowed to have the information within the party’s business. This could be a specific department or a select few named individuals; all those details need to be clarified.
There should also be a broad indemnity clause that gives a party a right to reimbursement for loss if one party breaches the confidentiality clause and causes the other party loss.
Scope of goods or services
When it comes to technology agreements, the devil is in the detail. The more vague the agreement is, the less effective it will be.
In an IT goods and services agreement, the scope is arguably the most important part of the contract – for both parties.
In an IT goods and services agreement, it is important to outline the services being provided by the parties in a clear and detailed way. The IT goods and services agreement should define exactly what you will be getting, as well as what is not included in the agreement.
An example is when companies offer services for businesses in the form of packages that include a few different elements in them. In such situations, it is important that the agreement set out exactly what is being provided, so that the expectations are set for both parties.
Mapping the scope of service in an IT agreement also gives a good indication of the timing of when things will be provided, so that business-critical activities are taken into account.
Technology services can be more time-sensitive than most, so customers and suppliers need to include this clause to make sure that there is a mutual understanding of the timeline of the scope of work.
Expectation-setting is at the core of many amicable business transactions. Clear and unambiguous contracts enable both parties to set expectations from the outset.
While conflict-avoidant personalities may seek to avoid setting expectations, it is vitally important in order to avoid disputes later down the track. If you need something done by a particular date – communicate it.
Limitation of liability
There are issues of cyber security (phishing, hacks and security breaches) that could occur. Or there could be system failures, where the business experiences significant disruption until the system failure is resolved.
While there are many measures that IT suppliers of goods and services can take to ensure that their goods and services are provided to a high standard, the risk of human error (particularly for complicated information technology goods and services). Further, there is always a risk of security breaches, or systems being hacked.
For purchasers of IT goods and services, it’s important to ensure that the supplier holds appropriate insurance. Depending on what you have purchased, insurance may include:
- Professional indemnity insurance
- Cyber insurance
- Public liability insurance
- Workers’ compensation insurance
The aim is to ensure that, if something goes wrong, there is someone of substance (i.e. an insurer) standing behind the supplier. If there is a catastrophic event, it may be the case that the supplier cannot substantially cover the loss or damage. Insurance gives both parties the comfort that business can continue and loss or damage will be covered by a third party.
It is important that any insurance requirements be accurately captured in technology agreements.
Systems access and information
In order for an IT provider to provide goods and services in accordance with their agreement, they are likely to require a few things from the customer. This may include the customer:
- Providing access to servers
- Providing access to business-critical systems
- Providing access to premises, including offices
- Ensuring that key staff are available to direct and assist the IT provider
Often, the provision of IT goods and services requires cooperation and coordination between the client and the supplier. Suppliers, therefore, need to ensure that there are appropriate contractual obligations that require the client to assist in a helpful and timely way.
It is also important for consumers of IT goods and services to ensure that they choose a provider that they can genuinely partner with and whom they have a good business relationship with.
User acceptance testing
Once the IT provider has ‘finished’ their work, there should be a provision for user acceptance testing. This will involve the client testing and monitoring the work that has been done to make sure that it works as required and that, once live, it will not detrimentally impact existing systems
It is advisable for both parties to enter into an acceptance test plan. This way, the type of testing, the environment in which testing will be carried out and who will carry out the testing, can be agreed upon in advance.
If the IT provider is supplying goods or performing services over an extended period of time, the customer may wish to ensure that they maintain competitive pricing over the life of the contract.
This can be done by adding a clause that if comparable goods or services are offered at a lower price, the supplier will be given an option to match that offer. If they are unable to match the offer, the customer is free to take up the alternative and bring the contract to an end.
Need an IT goods and services agreement?
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Farrah Motley | Director
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