© M. Scheurer, 2002CT218 Professional Issues1 CT218 Lecture 5 Software Contracts.

© M. Scheurer, 2002 CT218 Professional Issues 1

CT218 Lecture 5

Software Contracts

© M. Scheurer, 2002 Professional Issues / Lecture 2

Do we need a formal Contract? Most disputes which end up in

courts are caused by lack of clarity as to what each party expected from the other

If a dispute has to be resolved in the courts, this will involve lawyers, accountants, judges, etc. trying to work out each party’s obligations


Who needs lawyers anyway? Optimists are the best deal makers Pessimists are the best contracts writers Lawyers are born pessimists (when they

draft contracts…)

Hilary Pearson, Computer Contracts


General Contractual Issues Pre-Contractual obligations

Confidentiality agreements (see example)

Invitation to Tender Offer and Acceptance Consideration Unfair Contracts Terms European legislation


Software Contracts (1) Agreement between the parties Commercial in nature Governed by the standard Law of

Contracts Specific problems relating to

e-commerce Digital signature Which law governs the agreement


Software Contracts

Includes: Name of Parties Standard Terms and

Conditions Set of Appendices (Annexes)


Standard Terms & Conditions

Appendix(Annex)

Standard Terms & Conditions

STC

Specific Documents

e.g. Specifications


The Object of the Contract

What is to be produced Contract should provide

Framework for variations to original specifications

Method of calculation of additional payment

Framework for other changes (e.g. acceptance testing, delivery schedule)


Deliverables Source code Command files

(for building and installing the executable code) Documentation Manuals (Reference, Training, Operations) Sofware tools to help maintain the code User training (on site / off site) Training for client’s maintenance staff Test data and test results


Obligations of the Client Information on Client activities/setup Information on software environment Access to staff Facilities for development and testing Facilities for software company staff

on client premises Attendance at progress meetings


IPR and other rights Who owns the rights to what

Books, documents, disks Intellectual Property Rights

Author of the software Software House Client (upon payment)

Written agreement (assignment of rights)

Sale or Licence …


Licencing Agreement (1) Exclusive Licence (expensive)

Software house retains copyright Software house can’t re-use the code

Non-Exclusive Licence (cheaper) Software house retains copyright Software house can re-use the code Client may acquire right to veto grant

of licence to others (competitors)


Licencing Agreement (2) Matters to consider

Duration of licence (termination) Right to assign (transfer) licence to

others Scope of licence

One or more computers One or more sites

ConfidentialityClient is prevented from allowing others to

become familiar with the software


Confidentiality Agreement Confidentiality of Client business Confidentiality of the software and

the properties of the systemApplicable at different stages:

Pre-Contractual stage Whilst software is being developed After delivery


Payment terms

Issues to be considered: Staged payment Milestones Delays and changes (attributable to

Client) Calculating the cost Changes to delivery schedule Changes to performance


Penalty ClausesDelays caused by the Supplier Contract may provide for a fixed penalty

payment for each week/month delay in delivering the software

Not very common Suppliers are reluctant to agree Will be taken into account in calculating the

cost Suppliers have every incentive to deliver as

soon as possible anyway


Indemnity

Each party will indemnify the other against potential liability for accidental or deliberate infringement of IPR due to their own faulte.g. if the software includes proprietary

components which the developer had no right to use


Termination of the Contract Client’s needs or circumstances

may change Software may no longer be

appropriate Issues to consider

Indemnity for termination Ownership of software developed

so far


Other contractual Issues (1) Quality control Progress meetings Managing the project Acceptance procedure

Determine if Contract has been delivered

Warranty and maintenance Bug fixing (free of charge – e.g. 90 days) Extended warranty (enhancements)


Other contractual Issues (2) Arbitration

Arbitration clauses are common Cheaper and faster than going to court Usually governed by Arbitration Act 1996

Inflation In case of long term maintenance Automatic review of agreed price Frequently linked to Business Costs Index


Other contractual Issues (3) Applicable Law

Choice of the law which applies to the Contract (and its interpretation)

If the parties have registered offices in different countries

If the performance of the Contract involves more than one jurisdiction

Language of the Contract If contract is to be translated, which is the

binding version


Limitation of LiabilityUnfair Contracts Terms Act (Section 3) Provides that a software house using a

standard from contract cannot, unless it is reasonable to do so, Exclude liability for its own breaches of

contract, or Claim to be entitled

To render a contractual performance substantially different from that which was reasonably expected of it

Render no performance at all (in respect of the whole or part of its contractual obligations)


Test of ReasonablenessCase Study: St Albans City and District Council v.

International Computers Ltd [1996] 4 all ER, 481

Errors in program resulted in a loss to the Council of £1.3 million.

ICL’s standard terms and conditions stated that its liability “will not exceed the price or charge payable for the item of Equipment, Program or Service in respect of which liability arises or £100,000 (whichever is the lesser)…”


Further ReadingFrom the reading list (available in the Library)

Bott, F. et alProfessional Issues in Software Engineering, 3rd

Edition, Taylor and Francis, Chapter 5

Other sources (for non lawyers) Bainbridge, 1996, Introduction to Computer law, 4th

Ed., Chapters 14-22. London, Pitman Reed (ed.), 2000, Computer law, 4th Ed. Blackstone

Press Rowland and Macdonald, 1997. Information

Technology law. Cavendish publishing, Ch. 3 & 4

© M. Scheurer, 2002CT218 Professional Issues1 CT218 Lecture 5 Software Contracts.

Documents

Transcript of © M. Scheurer, 2002CT218 Professional Issues1 CT218 Lecture 5 Software Contracts.