Sarah Ahmed is a Partner and Head of the Commercial Departmentat Anthony Gold Lerman & Muirhead. She can be contacted on 0171 940 4000.
Management consultancy, including computer consultancy, is one of theso-called ‘new professions’ who can buy insurance labelled ‘professionalindemnity’ to underwrite their competence.
The case of Stephenson Blake (Holdings) Ltd v Streets Heaver Limitedis a salutary lesson to computer consultants and purchasers of their servicesalike about the importance of ensuring that such cover is in place. Indeed,computers have such a business-critical role in most organisations today thatthe financial fallout can be very substantial. Players need to have the depth ofpocket to cover the risk of such failure since it is unlikely that exclusionclauses which seek to avoid liability altogether will hold good.
The purpose of this article is to highlight the potential exposure of acomputer consultant by reference to the findings in Stephenson Blake and,in the conclusion, to summarise some of the lessons to be drawn from that case.
The Background
The case related to the acquisition of a computerised accounting system by amanufacturing company to replace its existing computerised bookkeeping system.The new system was to be fully integrated, incorporating, in particular, stockcontrol, sales order processing and preparation of management and finalaccounts. It was to be networked with the purchaser’s different sites. Thecomputer supplier was to provide hardware and software and deal withimplementation, training and support and maintenance.
The purchaser had already had a feasibility study carried out by differentconsultants. The defendant consultant’s role related to advice in theselection and implementation of the new system, including drawing up a detailedspecification of requirements for incorporation in the invitation to tenderdocuments, selecting and recommending prospective suppliers, drawing up animplementation and testing plan and liaison with the computer supplier. Thecourt found that the purchaser relied on the consultant’s recommendation inits decision to buy the system.
The new computer system’s performance, both hardware and software, wasinadequate. Although performance was improved by a hardware upgrade, manysoftware defects remained and the purchaser eventually scrapped the whole systemand moved to a new supplier.
The Claim
The purchaser claimed that the consultant was in breach of his contractualduty (implied by law) to exercise reasonable skill and care by recommending aninadequate and unsuitable system. It was accepted by the consultant that it owedsuch a duty and that the standard against which it was to be judged was thatreasonably to be expected of management consultants holding themselves out to beexpert in the provision of the relevant services.
The task for the purchaser was then to establish:
- that the new computer system was in fact inadequate and unsuitable by reference to what statements were made when it was ordered and evidence about the system’s subsequent performance
- that any deficiencies were causally related to or resulted from the consultant’s breaches of duty – ie were any defects of a kind the reasonably competent and careful consultant should have discovered at the time that they recommended the purchaser to buy the system?
The court recognised that the purchaser’s knowledge of computing mattersmay qualify the extent to which it was entitled to rely on the consultant’sadvice. On the facts, the court found that small-scale use of computers byindividuals did not qualify the extent to which the purchaser could rely on theconsultant’s advice.
The Scope of a Consultant’s Duties
The court made the following findings about the scope of the consultant’sduties to the purchaser and breach of those duties.
1. Duty to ensure that the system chosen conformed with the specificationand, if not, or it was impossible to recommend such a system, to warn thepurchaser in plain terms of that fact and its likely consequences.
The specification provided that the purchaser wanted to use package softwarewith the minimum of modification to ensure that a ‘well proven system’ wasacquired. The court found that in only some aspects was the system well proven;in others it was incomplete or written as bespoke ‘at best not well proven incommercial use’.
The court found that the consultant was in breach of its duty of care becauseit did not evaluate the computer supplier’s claims about its software. In sodoing, the court took into account an independent computer expert’s viewsthat, had the consultant exercised proper skill and care, it would have:
- talked to other users of the software operating the same hardware; or
- if there were no such users, tested the software at the supplier’s offices to satisfy itself that it had all the necessary features, even though this may be ‘an incredibly time-consuming and complex operation’.
2. Duty to use due care and skill to ensure that the system recommended wouldcarry out the functions for which it was required efficiently and would have anacceptable minimum of operational faults or bugs. In the alternative, if nosupplier was capable of meeting these standards, the consultant’s duty was toadvise to that effect.
The court found that the software was unacceptably deficient when recommendedand contained an excessive number of faults. However, even though it consideredthat the consultant would have discovered the defects if it had conductedsufficiently exhaustive tests of system in simulated operating conditions orperhaps canvassed a wider variety of users and obtained frank answers, the courtfound that the consultant was not in breach of the duty.
This was because the court was not satisfied that the consultant should havedone more than it did or, if it had, that it would have revealed the defects. Itis also important to note that it was accepted that no system could be totally‘bug-free’.
3. Duty to use due care and skill to ensure that the hardware recommendedwould perform in conjunction with the recommended software in such a way thatthe purchaser’s computer operations could be carried out with reasonablespeed.
The court found the evidence of inadequacy of the hardware to beoverwhelming: ‘the defendants advised calamitously inadequate hardware withoutany independent calculation of their own, on the recommendation of a supplierwho had an obvious incentive to under-specify in order to cut prices. In my viewthat was a breach in itself… consultants in such a situation must in my viewbe holding themselves out as having at least as much competence as the suppliersin such matters, otherwise they cannot give any worthwhile advice as betweencompeting bids’.
4. Duty to use due care and skill to ensure that the suppliers recommendedhad the requisite skilled staff and could reasonably be expected to show thenecessary stability, both financial and organisational, to maintain and supportthe system over a substantial period.
On the facts, the court found that the purchaser had relied on theiraccountant and not the consultant about the supplier’s financial status.However, it is important to note that the court did not dismiss out of hand theidea that the consultant could owe such a duty of care and skill.
As to competence of staff, the court found that there was certainlyreason to criticise the supplier’s staff’s methodology for programmingbecause there was no formal structure for the design or development or testingof software and little documentation in that regard. However, the courtrecognised that this reflected the prevalence of similar practices at comparable(small) firms – in short, you get what you pay for.
As to the number of staff, the court found that the consultant mayhave been negligent in overstating the number of support development staff inthe computer selection report. However, it also found that no damage flowed fromthis possible negligence because fewer programmers could have done the jobsatisfactorily anyway.
5. Duty to use skill and care to ensure that the supplier recommended was ina position to deliver the required system in accordance with the purchaser’srequirements.
The court found the consultant to be in breach of this duty because thesystem was presented by them as within the specification, ie as being a‘package’, and such indications as there were of software modifications wereunemphatic and incidental and quite inadequate to warn the purchaser of the trueposition – ie that the software was not ‘well proven’.
6. Duty to advise or warn about the impact, if any, of financial constraintson the purchaser’s requirements.
The consultant argued that the above-mentioned duties ought to be qualifiedbecause the purchaser had imposed budgetary constraints on total costs. Thecourt rejected this argument, holding that it was for the consultant to adviseif such constraints were compatible with the operational and other requirementsto which they were working and to what extent, if any, such constraints wereendangering or likely to endanger compliance with those requirements. This ithad not done.
Conclusion
Computer consultants’ duties to clients are potentially wide-ranging. The StephensonBlake case might be considered unusual because purchasers usually sue thecomputer supplier for breach of contract of express or implied (fitness forpurpose/satisfactory quality) terms for performance shortfalls. However, if thecomputer supplier is not worth powder and shot, purchasers can be expected tocast the net wider, especially where the very existence of insurance cover forprofessionals tends to mean that claims levels against them are high.
It is suggested that the wise consultant should take the following steps toensure that clients know what they are getting and to protect their ownposition:
- always check out a supplier’s claims about hardware and software itself through independent assessment and be wary of ‘sales puff’ and vapour-ware
- avoid making statements about less technical areas such as the number of the supplier’s staff and the supplier’s financial status unless it has checked out the position for itself – in Stephenson Blake the court found no breach of duty, however the law makes it clear that, if an advisor volunteers advice on such matters and it is reasonable for the recipient to rely on it, the advisor assumes responsibility for the advice
- always make a thorough comparison of the system against the client’s requirements and warn the client about any shortfalls and their consequences
- advise and confirm in writing to clients any qualifications in respect of advice, eg as a result of the imposition of costs constraints
- take out professional indemnity cover and, where possible, contractually limit exposure to clients in terms of business.
Equally, purchasers should ensure that their consultant has applicableprofessional indemnity cover and the amount of cover is at a level which islikely to compensate them if things go wrong. Otherwise, they may end up out ofpocket in a market saturated with software houses who may not have the stayingpower or depth of pocket to account for their failings.
