Opportunity and Conundrum

 

Information technology and the public sector have always had something of a chequered co-existence.  It is abundantly clear that central and local g

overnment bodies can benefit from the application of computer systems.  A drive to e-Government and the search for greater efficiencies inevitably involve investment in new technology.

 

The UK has some of the world’s largest public sector IT projects, such as the NHS IT Programme and large projects in the Ministry of Defence and Department for Constitutional Affairs.  They offer huge opportunities to improve the range of public services and how they are accessed for the benefit of individual citizens.  Sir Peter Gershon’s 2004 report “Independent Review of Public Sector Efficiency” has prompted a significant number of IT and outsourcing proposals. The e-Government Unit’s (EGU) “Transformational Government” Plan published in November 2005 (A Vision for 21st Century ICT) provided that services must be enabled around the citizen or business and that there must be a broadening and deepening of government’s professionalism in delivery, management, skills and governance of ICT. The EGU’s mission is ‘ensuring that IT supports the business transformation of Government itself so that we can provide better, more efficient, public services’.

 

One reason put forward for the UK being involved in so many leading edge IT projects in the public sector is that we are a reasonably sizeable nation with a population of some 60 million and many of these projects involve a huge number of individuals.  The introduction of an ID card scheme is an obvious example.  Of course we are not as big as the USA but, of necessity, the USA tends to break things down into smaller units, so the UK could be considered relatively unusual in having such very large projects, although the same should be true for equivalent countries in the EU such as France and Germany.

 

I have acted for the public sector and for IT suppliers for two decades and have seen some fascinating developments over that time, some of which I chronicle in this article.  However, a central conundrum remains:

·                     the public sector requires and needs new technology without being taken advantage of by sophisticated IT suppliers

·                     the IT sector wants to participate in the £14 billion public sector annual spend and seeks close relationships and partnerships with the public sector, but is concerned that it receives a fair and reasonable return for its investment on equitable contract terms

·                     despite many well intentioned initiatives by industry and by the public sector to improve the contracting process, lots of projects still end in tears.

 

Now there is a better and more in-depth understanding on both sides as to the issues involved.  There is professional guidance and model contract terms for different categories of procurement produced by Government bodies.  The IT sector, through the trade group Intellect, has published guidance on the contract process.  The theme of this article is that this greater knowledge and understanding available through standard contracts and guidance can, if properly applied, create both a better environment and more successful contract delivery.  However, these tools need to be utilised with an understanding of how major projects work.

 

History

 

Standardisation

 

There has been a debate for many years in the UK as to whether customers and suppliers would benefit from the standardisation of IT contracts.  At various times efforts have been made by trade associations in the private sector to produce standard contract forms for hardware sales, software licences and systems contracts in the same way that standard contract forms have been developed for the construction industry such as the JCT (Joint Contracts Tribunal) forms.  In this sense standard contracts means forms of terms and conditions which are acceptable to and utilised by customers and suppliers generally in the sector concerned.  However, these attempts at industry standard conditions have never really gained general acceptance in the IT sector.

 

In the UK therefore computer contracting was for many years based on the standard terms offered by the suppliers of hardware and the licensors of software.  Some of these were fair but some were very one sided, imposing stringent terms and unexpected additional software licence charges.  Many were not suited to the particular deal for which they were intended.  Some very large customers with buying power reacted by trying to use their general purchase terms and conditions, but these were generally unsuitable for IT contracts.

 

Customer Terms

 

Gradually customers have become more aware of the difficulties associated with relying upon suppliers’ standard conditions.  In private sector IT procurements in the UK now it may often be the customer which insists on the supplier complying with its terms and conditions which are sent out with the invitation to tender.  It has however been the public sector which has led this change of approach; the public sector has developed a series of standard contract terms which of necessity have been generally accepted by suppliers who wish to participate in the lucrative IT opportunities offered in the UK public sector.

 

Government Standards

 

Central and local government agencies who are subject to public review and audit were quickest to develop pro-active procurement and project management techniques as buyers of technology.  Over the years a variety of standard terms have evolved.  Initially government buyers in the UK insisted on the use of a little red book which was called GC Stores (Edition April 1979) Standard Conditions of Government Contracts which originally date back to the 1950s.  These conditions were used to buy any goods or services including computers (for which they were singularly inappropriate) and contained Draconian terms as far as suppliers were concerned for the transfer of intellectual property rights to the Government.

 

In recent years a more enlightened approach has developed in public procurement as the issues around acquiring IT have become better understood. There has also been something of a split into what might be termed commodity purchases of standard items such as PCs, servers or off-the-shelf software, and more complex IT projects.  In the commodity arena the Government has created a system of catalogue purchasing.  This has been known as G-Cat or S-Cat and is in effect a means of selecting a number of suppliers for different categories of IT products and services which can be called off by customers with reference to standard terms and conditions.  These have been revised recently under the Catalist scheme, which is promoted by the Office of Government Commerce (OGC) Buying Solutions,[i] with more categories and a relatively limited number of suppliers in each category.  This follows the changes in the European Public Procurement Rules (Directive 2004/18/EC 31/03/04 on the Co-ordination of Procedures for the Award of Public Works Contracts, Public Supply Contracts and Public Services Contracts) permitting framework contracts subject to certain conditions.  However, the UK IT Industry is concerned that the revised categorisation limits the choice of suppliers available to provide the IT equipment or services.  The standard conditions for catalogue acquisitions are usually relatively straightforward.  There are often agreed terms which are settled with particular customers and some amendments are negotiated during the procurement process.

 

Project Contracts

 

A more sophisticated approach has also evolved for project contracts as concern grew about the failing of a number of major IT contracts.  A government agency known as the CCTA (the Central Computer and Telecommunications Agency) developed standard conditions for major procurements and started to insist that suppliers bidding for projects utilised these conditions rather than their own standard terms.  As from 1 April 2001, the CCTA became an integral part of the OGC. This in turn evolved further under the Private Finance Initiative (PFI) regime in the UK where a number of standard conditions and guidance relating to them were used on major IT projects.[ii]  These contract conditions were also utilised for public sector procurement of major construction and infrastructure projects where private finance was involved.

 

However there was considerable concern that PFI derived contracts were not necessarily appropriate for IT projects.  Private sector financing was hard to secure for IT projects because there were perceived to be risks relating to the security available for the funding associated with the complexity of IT and the ever-changing nature of technology.  HM Treasury announced, in the summer of 2003, that there would be a presumption against the use of the PFI model in future IT procurements.

 

OGC Models for Project Contracts

 

Overview

 

In December 2003 the OGC published a Decision Map for Procurement and accompanying Guidance for IT Contracting. They were also a response to the joint Cabinet Office/OGC report “Making a Difference – Reducing Bureaucracy in Central Civil Government Procurement” of December 2003 which identified scope for contractual standardisation.

 

Following extensive consultation between the OGC and IT suppliers on the Decision Map and accompanying Guidance, the OGC published four new sets of model contract terms and some accompanying guidance in December 2004 to replace a plethora of previous contract terms. The new sets of terms were for:

• general (non IT-specific) goods procurement
  
• general (non IT-specific) services procurement
  
• IT-specific “inputs”, ie specific goods and services
  
• IT-specific services with the emphasis on outputs and outcomes.

 

Contract Guidance Issues

 

The model contracts adopt some in principle “policy” approaches to key aspects of IT contracts which are of particular application to major service contracts. Some of the key elements are summarised below.

 

• Payment Profiles, Milestones and Delay Payments

In most projects, contractors will be paid by a combination of milestone payments and (in the case of output contracts) service charges. Milestone payments are intended to be used to reduce the amount of the contractor’s financing costs in relation to the project assets (for example, equipment costs and the cost of software or system development). Government bodies are advised that milestone payments should not, therefore, directly match the contractor’s costs as they are incurred. The amount paid should reflect the value delivered to the Government at the relevant milestone point and a demonstration of value (eg passing a performance test) will be required at each stage.

 

In output contracts, it is envisaged that there may be a series of milestones (for example the successful completion of pre-operational tests, the go-live date and the point after the go-live date at which the contractor has demonstrated that the solution is working satisfactorily in its “steady state” operating environment). In inputs contracts it is likely that the only relevant milestone will be a formal acceptance procedure against specific criteria following contract delivery.

 

If the contractor misses a milestone date, the Government will be entitled to withhold milestone payments and, depending on the criticality of the commencement date of the service and the milestone, will also be able to charge delay payments.

 

• Value for Money Provisions

For output based contracts, especially longer term contracts, there are provisions in the Model Contracts that will assist the Government in obtaining value for money throughout the duration of the project. Before the award of a contract, contractors must submit for scrutiny a financial model of the project showing the budgeted items of initial set-up and ongoing service delivery costs and assumed profitability.  On the basis of the agreed financial model, the Government will require the contractor to provide annual accounts in relation to the services.  The accounts should expose the contractor’s actual cost of, and return from, the service provision over the life of the agreement. Annual review meetings must also take place to consider the extent to which savings have been found and implemented in the preceding year as well as future opportunities to be investigated and a target saving for the forthcoming year. It is envisaged that the Government and contractors will share in any achieved savings via a reduction in charges in a proportion which will be bid for by the contractor during the bid stage. Benchmarking will also be applied to service performance in output contracts as well as service payments with improvements or price reductions specified in a benchmarking report to be implemented within specified periods of time.

 

·         Service Levels and Service Credits

 

In output-based contracts, the contractor will be required to meet agreed service levels during the life of the contract.  In the event of a failure to meet service levels, the first obligation of the contractor will be to restore the service, regardless of fault.  Service credits will be payable for a failure to meet service levels (at a higher rate for more serious or persistent failures). The Government suggests that service credits should be capped at a certain “threshold” level so that critical or chronic failures can be dealt with outside the service credits regime where other remedies such as damages (liquidated or general), and ultimately termination, will be available.

 

• Due Diligence

The Government will not provide any warranties as to the state of affairs at the commencement of a contract.  If it is not possible in certain areas for meaningful due diligence to be carried out or the urgency of the project does not permit it prior to the award of contract, then the Government says that it will, as an exception, consider agreeing certain clearly defined pricing assumptions and agreeing a process to vary the pricing if those assumptions are wrong and this has a demonstrable impact on the original pricing.

 

• Intellectual Property Rights

The general principle, which is reflected in the model contracts but can be waived (eg for security reasons), is that IPR should be owned by the party best placed to exploit the rights. It is acknowledged that this is usually the contractor and that the Government can achieve its business objectives by ensuring that it has sufficiently wide licence rights.  The Model Contracts therefore grant the Government a perpetual and royalty-free licence to: (i) use specifically created deliverables within the relevant organisations without restriction; (ii) allow other public sector users to use the services provided by the contractor; (iii) transfer the benefit of the licence to other public sector bodies; (iv) allow other service providers to deliver inter-connecting services; and (v) allow other service providers to provide the services or replacement services upon termination of the contract, the triggering of step-in rights or upon the expiry of the contract. The Government can also require that source code and underlying programmer’s materials for specially written software are delivered up at appropriate intervals (eg upon the delivery of the software application, module, or update).

 

Where the IPR in specifically created deliverables remains with the contractor and it also has the potential for wider commercial exploitation on its own or as part of another product, the Government is also likely to seek to ensure that the value of their contribution to the creation of the IPR is reflected in either: (i) a reduced contract price; and/or (ii) some agreed method of participation in the future commercial exploitation of the rights.

 

• Key Personnel

In all contracts, the Government will require as a minimum the following rights in relation to key technical and management personnel: (i) the right to require use of staff designated key personnel in the provision of the services whilst they are employed by the contractor; (ii) the right to approve the replacement staff designated key personnel; and (iii) the right to deal with an excessive level of turnover of key personnel.

 

• Financial Distress

In business critical or major output-based projects, the Government will be able to take measures in response to events indicating financial distress on the part of the contractor.  This may include the contractor being required to set up an escrow account in the joint names of the parties into which the Government pays the charges – with the balance in the account released to the contractor when the sub-contractors have been paid – possibly with an amount being retained in the escrow account after payment of sub-contractors to create a fund to compensate the Government for the cost of re-procuring the services if it terminates the agreement for contractor insolvency or breach.

 

·         Termination for Convenience

 

The Government will be permitted to terminate contracts for convenience in accordance with the following principles: (i) if the contractor has no unrecovered capital costs and 12 months’ notice or more is given then the contractor will not be entitled to any compensation; (ii) where the contractor is given less than 12 months’ notice it should be paid an amount that should not exceed 12 months’ “Contractor’s Return” (as referenced in the financial model agreed prior to contract award) dependent on, and directly related to, the actual amount of notice that has been given; (iii) the Government should also pay “Breakage Costs” (for key sub-contractors) if less than 12 months’ notice is given.  What amounts to recoverable Breakage Costs needs to be carefully defined and the onus is on the contractor to ensure that the same definition is used in its sub-contracts.

 

• Rights on Termination or Expiry

On the termination or expiry of an output-based contract, the Government will have the option (but not the obligation) to: (i) acquire ownership (ie legal title) of sole use assets (where assets are used to provide the services to the Government only); (ii) acquire further use of assets shared with other customers of the contractor for a transition period or to require the contractor to provide substitutes for shared use assets; (iii) require the novation of sub-contracts; and (iv) require ongoing services and support on an agreed basis from the contractor for an agreed transition period.  In inputs contracts, if the contract terminates before acceptance, it is envisaged that the assets are likely to be of limited value, although the Government may wish to retain the option to acquire assets and IPR so as to transfer the project to a replacement contractor.

 

• Step-in Rights

In output-based contracts the Government will have rights to step in and take control of the provision of the services both as an alternative and as a precursor to termination (eg in the event of certain actual or anticipated breaches). The Government will be able to exercise the rights of step-in itself or through a third party. In the event of step-in due to a default of the contractor, no charges will be payable for any suspended services and the contractor will be required to pay the extra costs over and above the normal amount of the charges incurred as a result of exercising its rights of step-in.

 

• Liability

Liability for indirect, special or consequential losses or for loss of profit or expected turnover will be explicitly excluded. Subject to certain exceptions, all other liabilities will be limited in financial terms by financial caps on liability. However, losses recoverable under the agreement will be defined to include additional administrative costs, wasted expenditure, wasted management time and third-party costs. The Government may also look to cover loss of anticipated revenue/savings and loss of or degradation of data explicitly to the extent that it requires this risk to be transferred to the contractor. The Government acknowledges that whether this is appropriate will depend on the nature and purpose of the agreement and the extent to which the contractor is in a position to manage the risk.

 

• Supply Chain Rights

Where appropriate, in output-based contracts, the Government will have the following rights in relation to the contractor’s supply chain: (i) a right to ensure that no sub-contractor may be engaged without prior written consent; (ii) a right to ensure that no sub-contract may be materially amended or terminated without prior written consent; (iii) where an act or omission of a sub-contractor gives rise to a contractor event of default, a right that the relevant sub-contract be terminated by the contractor as an alternative to terminating the agreement with the contractor; (iv) exceptionally, a right to terminate the agreement in the event of a change in control of a material sub-contractor (a sub-contractor that is critical to the project and not one that supplies commodity deliverables or services); (v) a right to particular third-party rights under a material sub-contract including the right to have the sub-contract assigned; (vi) a right to step in to a sub-contract; and (vii) a right to require the contractor to take advantage of (and reflect in reduced charges) any better terms negotiated by the Government in relation to goods or a service supplied under a sub-contract entered into by the contractor.

 

• Change Control and Changes in Law

All contracts will contain a procedure to deal with change on the basis that, where possible, certain categories of change may be called off from a pre-agreed catalogue. Also, where the Government proposes a change, the contractor will be required to implement it if it is technically capable of doing so. Responsibility for changes in the law during the life of the contract will also be addressed. As a general rule, general changes in the law that affect all suppliers doing the same type of business will be the contractor’s responsibility whereas specific changes in the law that would not apply to the contractor but for the fact that it has entered into the particular deal with the Government will be the Government’s responsibility.

 

Industry Response through Intellect

 

In the UK the trade group Intellect, of which most of the leading IT companies are members, acts as an interface between industry and Government.  In April 2006, partly in response to the OGC standard contract provisions, Intellect issued guidance on what, in the industry’s view, constitutes best contracting practice for public sector contracts.  The guidance, which is available to members on Intellect’s Web site (www.intellectuk.org), was a product of a working group which I participated in, involving a number of key IT suppliers and advisers (including BT, BAE Systems, EDS, Fujitsu, IBM, Logica CMG and Steria).

 

The guidance is based on the view expressed in the foreword that “project success requires that, from the outset, behavioural and relationship issues are recognised as a vital part of effective delivery, and the written agreement should reflect these less quantifiable aspects of contracting”.  The guidance reflects the view in the IT supplier community that, whilst it recognises the benefits of the OGC standard contracts for major projects, there is a general concern that these are being applied harshly in practice resulting in one-sided contracts.  This is not good news for suppliers – or indeed for the public sector customer whose projects are less likely to be delivered successfully if there is no true spirit of partnership.

 

The guidance attempts to identify current contracting best practice and sets out key objectives which include:

• successful and reliable delivery
  
• value for money for the customer
  
• an equitable balance of risk
  
• a joint commitment to work together
  
• a healthy and profitable project.

 

The guidance then sets out 20 principles of best practice ranging from the procurement process and pre-contract information through Government supply chain, due diligence, limits of liability and indemnities, intellectual property rights, change management, dispute resolution and remedies.

 

While some of these, such as the procurement process, will be of general interest, some will be particularly applicable to legal advisers.  Here are some examples:

• Due Diligence – customarily the supplier is expected to carry out the due diligence process to their own satisfaction, but the customer should also take responsibility for providing and warranting as much information as can be made available.
  
• Limits of Liability and Indemnities – liability should normally be limited, reasonable and proportionate to the scale and type of the project concerned.  Broad indemnities should be avoided.
  
• IPR – IPR ownership should be objectively and logically determined; IPR has value and the supplier will normally have the greatest ability to realise that value.
  
• Project Timetable – the project timetable should be agreed by both parties and recorded.  It should recognise business critical dates yet respond flexibly to any changes.
  
• Change Management – an open and balanced change management regime should be agreed based on the principle of allowing change to occur flexibly so as to adjust the contract as requirements evolve and to respond to unforeseeable future circumstances.
  
• Dispute Resolution – dispute resolution should be seen as a process which can be resorted to regularly during the lifetime of the contract to resolve potential conflicts and litigation.  It is not simply a final resort prior to court proceedings for arbitration.  The process should be fair, with appropriate escalation.
  
• Remedies – remedies should be balanced and address the different potential contract breaches which may occur – termination clauses should be applied fairly equitably.

 

The guidance also sets out a number of misconceptions which Intellect members have encountered in the course of their business interaction with the public sector.  It is from these that many of the problems I have experienced with major contracts have actually arisen.  A typical example is in misconception five: “rushing contract negotiation based on a rigid and fixed timetable is good project management”.  The detailed commentary then suggests that rushing negotiations would typically result in discussions being truncated with a risk of key contractual or commercial points left only partially understood and not fully resolved.  The project team then has to work out what was intended after contract signature which can lead to misunderstandings, delays and dispute.  Time spent establishing important principles and practical processes at the negotiation stage prepares the ground for later success.

 

In many ways this summarises the rationale not only for these guidelines but for the OGC standard contracts.  Contracts should insofar as possible avoid the phenomenon familiar to all major projects of “project dip” where, after the contract is signed, everybody heaves a huge sigh of relief, the A or bid team leaves, and the B or delivery team then spends the next six to eight months trying to work out what on earth they have to do in order to deliver the project successfully.

 

New Government Developments

 

On 8 September 2006 the OGC and Partnerships UK (PUK) (which is a part of the UK Treasury and whose mission is to support and accelerate the delivery of infrastructure renewal, high quality public services and the efficient use of public assets through better and stronger partnerships between the public and private sectors) launched some important changes to the recommended model contracts and procedures used for the acquisition of information technology in the public sector. 

The new arrangements involved two important changes, one related to the Model Clauses themselves and the second relating to the way in which the clauses will be administered.

1. First, the Model Clauses have been re-issued with the accompanying schedules drafted to the extent it is possible to do so without including project specific material. 
2. Second, PUK is taking over the administration of the Model Clauses, schedules and guidance which are available on the PUK Web site at http://www.partnershipsuk.org.uk/ictguidance/.

It is important to note that the new guidance and contract provisions relate to the Model Contract for output services – in other words the standard for major service contract projects.

 

New Schedules

 

The schedules take forward the Model Clauses by providing a template for the schedules which fit with the terms and conditions of the contract.  The introduction of the schedules has necessitated some changes to the contract clauses.  However, it was stressed at the presentation of these new arrangements that the policies underlying the model contract and Guidance (some of which are articulated above under contract guidance issues) have not changed.  Some of the Guidance has been included in schedules and there are cross-references between the various documents, which make them easier to use (particularly if you are using links on the Web site).  The contract is also available on the site in a Word version that can be downloaded without any of the Guidance to form the starting point for a contract.  There are some 150,000 words, 580 pages and 31 different schedules, so this is a very thorough exercise indeed.  The drafting is intended to take into account experience and practice and to reflect the lessons learned in negotiating these contracts.  The intention is that the parties negotiating a public sector procurement for a major IT service contract will be able to concentrate on the key issues that are particular to that deal and which need to be documented, rather on the standard wording of, say, a force majeure clause or a change control procedure schedule.

 

Procedural Changes

 

Interestingly, OGC seems to be taking a back seat in terms of the administration of the new Guidance, all of which is now available on the PUK website.  It would appear that the OGC will continue to develop policy in this area but that it will be PUK, with its greater resources, which will act as the repository of the new material and which will provide guidance and seek feedback.  The OGC remains responsible for contracting for ICT inputs and supplies, and for procurement advice relating to all ICT applications, as well as for the policy underlying all ICT applications.  It will retain control over future revisions to the ICT services guidance.  However, PUK assumes responsibility for hosting, advising on and supporting the development of the ICT Services Guidance.

 

Consultation

 

OGC and PUK stressed at the launch of this new Guidance that they had taken into account issues raised by the IT industry, particularly through Intellect.  They recognised that there were still ongoing concerns related to, for example, the provisions on financial distress, the payment mechanism and benchmarking.  Following the launch of this new Guidance, OGC and PUK are entering into further consultation with Intellect and plan to update the Guidance as a result of this consultation process.

 

Comment

 

A common starting point for public sector procurement is to be welcomed.  If the Standard Contracts and Guidance are followed and flexibility is still retained in negotiations then these arrangements may support more efficient and improved contracting practices.  There are still however issues in terms of take up amongst public sector bodies.  The Guidance has effectively been produced by reference to central government and it is clear that much needs to be done to promote its use amongst, in particular, local government organisations and their various representative groupings.  There is also still the issue raised by Intellect of lawyers being instructed by a public sector authority to take the standard and toughen it up and then insist on compliance by all bidders in a procurement.  The reason in our view why so many public sector contracts have failed has been the inability or unwillingness of the parties to properly reflect in the contract the ICT arrangements that they seek to document.  A procurement process that is too rigid may compound rather than cure this problem.  Nevertheless, if this Guidance and the Model Clauses and schedules are utilised in a professional and flexible manner, then they could well form the basis for improved public sector ICT contracting.  It will be interesting to see what response Intellect provides to the Government on behalf of the IT community.

 

Conclusions and the Way Forward

 

Government Standards

 

The OGC and PUK contract initiatives make two key assumptions:

·         effective take-up within the Government (which has a variety of different constituencies, ranging from the sophisticated procurement processes within the Ministry of Defence to the smallest local authority acquiring e-government systems with little in-house IT procurement experience); and

·         effective and willing participation by understanding suppliers who believe the models will offer them an opportunity to provide IT to the public sector while still achieving a reasonable return.

 

There are many issues still being debated by the Government and industry representatives concerning these processes.  Nevertheless the starting point must be an understanding of the Government’s proposed approach.  In order to promote successful IT procurement, both sides in this debate need to avoid the “one hand clapping” syndrome.  To improve the sad statistic that only 30% of major Government IT procurement projects are delivered on time and to budget, there does need to be an environment of co-operation and understanding between the supplier and customer community.  At the end of the day, all the standard terms and conditions imaginable, however well thought through and drafted, are no substitute for an effective IT procurement which represents a win-win for both sides: the Government achieving successful IT which works in practice, and private sector suppliers having project opportunities from which they can make a reasonable financial return.

 

Industry Position

 

My sense, from being involved with the production of the Intellect guidance, is that there is a serious and genuine will within the supplier community to work with the public sector on these exciting projects to deliver successfully, on time, to budget and with a fair return for the supplier.  As lawyers, this guidance provides invaluable insight into our overall understanding of major technology project contracts and enhances our ability to contribute commercially aware advice and drafting expertise.  We must of course fully protect our clients’ position in the contract, but should also strive to enable our clients – be they public sector customers or private sector suppliers – to achieve their objectives and ultimately deliver a public benefit to UK citizens.

 

Best Practice

 

Looking back over my experience of dealing with all manner of iterations of standard contracts and industry guidance, some clear principles emerge which I propose will promote successful contracts that meet the requirements of the public sector customer and deliver the expectations of the IT sector supplier.

·                     Lawyers and other contract advisers must be brought into the procurement process from the outset and not “parachuted in” late in the day when it is too late for them to contribute effectively and when they may cause delay by trying to re-write everything.

·                     Standard contracts are an excellent basis for starting but must be tailored, as the new OGC/PUK guidance emphasises, for every particular contract.

·                     It is a myth to suppose that there is no need to negotiate with a preferred supplier – it is often only when the preferred supplier has been selected that their true cards will be placed upon the table.

·                     It is a mistake to enter into a major contract when the requirements and/or the solution are not known – it is preferable in these circumstances to have a two-stage contract with an exploratory consultancy arrangement as a prelude to any significant contract.

·                     Following a sensible timetable for a major contract negotiation is a must: rushing any of the stages almost always leads to disaster.

·                     A contract is not over in terms of its contractual or legal consequences just because it is signed – it is then that the real work begins.  The continued involvement of contract officers and lawyers is critical to ensure compliance as the delivery evolves.

·                     At the end of the day these complex service contracts for the delivery of technology are about good working relationships – if the parties can transpose into words the way they wish to work together in the form of a contract, the chances of success are considerably enhanced.

 

There is no magic solution which you can take out of a box and apply to every project.  However, sufficient guidance, standard contract terms and schedules now exist to support successful IT contracting in the public sector.

 

Clive Davies is an SCL Trustee and a Partner in the IT and Outsourcing Group at Olswang.