EFFECTIVELY MANAGING ICT CONTRACTS

 KENT DAVEY  PRINCIPAL

Introduction

Many organisations give careful attention to the procurement process for the acquisition of ICT goods and services but fail to give the same degree of attention to managing their ICT contracts for the supply of the ICT goods and services.  Both good governance and sound commercial practice require organisations to effectively manage their ICT contracts to achieve successful outcomes.  This article is intended to assist organisations to effectively manage their ICT contracts by: (i) providing guidance on developing a contract management plan for an ICT contract; (ii) outlining the various dispute resolution procedures that may be used to resolve a dispute arising under an ICT contract; and (iii) suggesting provisions which may be included in an ICT contract to assist an organisation to effectively manage the contract.

Contract Management Plans

An organisation should consider developing a contract management plan for high value ICT contracts and ICT contracts which include complex technical requirements.  The contract manager will usually be responsible for the development of the contract management plan.  A contract management plan should ideally be developed at the beginning of any procurement process for the acquisition of ICT goods or services.

A contract management plan for an ICT contract should contain all of the information which is required by an organisation to effectively manage the contract.  A contract management plan may include the following information:

·                          Background — the background for the procurement of the ICT goods or services including contract documents, contract objectives and key deliverables

·                          Parties’ representatives and stakeholders — details of the parties’ representatives and stakeholders, supplier’s key personnel, parties’ relationships, parties’ meetings and communication strategies

·                          Reporting requirements — details of the reporting requirements under the ICT contract including the information required to be reported, report format and reporting frequency

·                          Performance measures — measures for evaluating the supplier’s performance under the contract including the frequency for assessing the supplier’s performance

·                          Change management procedures — procedures for dealing with changes to the ICT goods or services required to be supplied under the contract

·                          Risk management procedures — strategies for reducing risks arising in relation to the contract and procedures for dealing with any risks which do arise

·                          Dispute resolution procedures — procedures for dealing with any disagreements, disputes or breaches in relation to the contract

·                          Step-in and termination procedures — procedures to be followed where the customer requires to exercise any step-in rights or terminate the contract

·                          Security and insurance — details of any financial undertaking or performance guarantee required to be provided to the customer by the supplier and the insurance required to be held by the supplier

·                          Installation / implementation arrangements — arrangements for any required installation or implementation of the ICT goods or services including dealing with impacts on stakeholders and transition-in tasks

·                          Milestones and deliverables —  a description of the milestones and deliverables, the responsibilities of the parties in relation to the deliverables, delivery dates and any liquidated damages payable if the delivery dates are not met by the supplier

·                          Payment arrangements — arrangements for paying the supplier, conditions for making payment, service level rebates, any right of the customer to withhold disputed payments and  any set-off rights of the customer

·                          Contract review procedures — procedures for reviewing the supplier’s performance under the contract including the dates for undertaking such reviews

·                          Completion arrangements — arrangements for the completion of the supplier’s obligations under the contract including any renewal or extension options, transition-out tasks and any information or assistance required to be provided by the supplier for re-tendering

Dispute Resolution Procedures

In the event that the parties to an ICT contract are unable to resolve any difference arising between them then they will need to resort to a dispute resolution procedure.   If the ICT contract itself contains a dispute resolution procedure then the parties will need to comply with the procedure unless they otherwise agree to adopt an alternative procedure.  Ideally the ICT contract will specify an appropriate dispute resolution procedure to be followed by the parties in the event of a dispute arising under the contract.

A dispute arising between the parties to an ICT contract may be resolved using one or more of the following dispute resolution procedures (in order from least to most costly and time consuming):

·                          Negotiation — the parties negotiate with the intention of agreeing a mutually acceptable outcome which may involve escalation to senior management

·                          Mediation —  a neutral third party facilitates negotiations between the parties to agree a mutually acceptable outcome

·                          Expert determination — a person with technical expertise makes a determination in relation to the dispute where it involves a technical matter

·                          Arbitration — an independent third party makes a determination in relation to the dispute which will be legally binding unless otherwise agreed between the parties

·                          Litigation — a party may seek redress (e.g. injunction, damages) through the courts to resolve a dispute

Contractual Rights and Remedies

The ability of an organisation to be able to effectively manage an ICT contract will largely depend upon the provisions contained in the contract.  Before entering into an ICT contract an organisation should ensure that the contract contains provisions which will allow it to effectively manage the contract and to take appropriate action where the supplier breaches the contract.

An organisation may consider including provisions dealing with the following matters in an ICT contract to allow it to effectively manage the contract and take appropriate action where the supplier breaches the contract:

·                          Service level rebates — a provision requiring the service provider to give the customer service level rebates where the supplier fails to meet service levels under the contract

·                          Withholding disputed payments — a provision allowing the customer to withhold any part of a payment due under the contract where the customer disputes that the amount is due to be paid

·                          Set-off — a provision allowing the customer to set-off any amount owed by the customer to the supplier (whether or not under the contract) against any amount payable by the customer under the contract

·                          Liquidated damages — a provision requiring the supplier to pay to the customer an agreed amount which represents a genuine estimate of the loss or damage that will be suffered by the customer where the supplier breaches the contract

·                          Indemnity — a provision requiring the supplier to indemnify the customer for any loss or damage suffered by the customer in relation to the contract in specified circumstances

·                          Financial undertaking — a provision requiring the supplier to provide the customer with a financial undertaking from a suitable financial institution which the customer may access where the supplier breaches the contract

·                          Performance guarantee — a provision requiring the supplier to provide the customer with a performance guarantee from the supplier’s parent company or another suitable third party guaranteeing the performance by the supplier of its obligations under the contract

·                          Step-in rights — a provision allowing the customer to step-in and take control of the provision of the services under the contract where the supplier fails to supply the services in accordance with the requirements of the contract

·                          Insurance — a provision requiring the supplier to have specified insurance cover with a reputable insurance company for claims for loss or damage arising in relation to the contract

·                          Termination — a provision allowing the customer to terminate the contract where the supplier breaches the contract and in any other necessary circumstances

Conclusion

A contract management plan is a valuable risk management tool which an organisation should consider developing in appropriate circumstances to assist it with managing an ICT contract.  In the event that a dispute arises between the parties to an ICT contract then there are a number of dispute resolution procedures which may be used by the parties to resolve the dispute where the contract itself does not contain a dispute resolution procedure.  Before entering into an ICT contract an organisation should carefully review its provisions to ensure that the organisation will be able to effectively manage the contract and take appropriate action where the supplier breaches the contract.