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

© M. Scheurer, 2002Professional Issues / Lecture2 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

© M. Scheurer, 2002Professional Issues / Lecture3 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

© M. Scheurer, 2002Professional Issues / Lecture4 General Contractual Issues Pre-Contractual obligations Confidentiality agreements (see example) Invitation to Tender Offer and Acceptance Consideration Unfair Contracts Terms European legislation

© M. Scheurer, 2002Professional Issues / Lecture5 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

© M. Scheurer, 2002Professional Issues / Lecture6 Software Contracts Includes: Name of Parties Standard Terms and Conditions Set of Appendices (Annexes)

© M. Scheurer, 2002Professional Issues / Lecture7 Standard Terms & Conditions Appendix (Annex) Standard Terms & Conditions STC Specific Documents e.g. Specifications

© M. Scheurer, 2002Professional Issues / Lecture8 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)

© M. Scheurer, 2002Professional Issues / Lecture9 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

© M. Scheurer, 2002Professional Issues / Lecture10 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

© M. Scheurer, 2002Professional Issues / Lecture11 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 …

© M. Scheurer, 2002Professional Issues / Lecture12 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)

© M. Scheurer, 2002Professional Issues / Lecture13 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 Confidentiality Client is prevented from allowing others to become familiar with the software

© M. Scheurer, 2002Professional Issues / Lecture14 Confidentiality Agreement Confidentiality of Client business Confidentiality of the software and the properties of the system Applicable at different stages: Pre-Contractual stage Whilst software is being developed After delivery

© M. Scheurer, 2002Professional Issues / Lecture15 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

© M. Scheurer, 2002Professional Issues / Lecture16 Penalty Clauses Delays 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

© M. Scheurer, 2002Professional Issues / Lecture17 Indemnity Each party will indemnify the other against potential liability for accidental or deliberate infringement of IPR due to their own fault e.g. if the software includes proprietary components which the developer had no right to use

© M. Scheurer, 2002Professional Issues / Lecture18 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

© M. Scheurer, 2002Professional Issues / Lecture19 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)

© M. Scheurer, 2002Professional Issues / Lecture20 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

© M. Scheurer, 2002Professional Issues / Lecture21 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

© M. Scheurer, 2002Professional Issues / Lecture22 Limitation of Liability Unfair 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)

© M. Scheurer, 2002Professional Issues / Lecture23 Test of Reasonableness Case 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)…”

© M. Scheurer, 2002Professional Issues / Lecture24 Further Reading From the reading list (available in the Library) Bott, F. et al Professional Issues in Software Engineering, 3 rd Edition, Taylor and Francis, Chapter 5 Other sources (for non lawyers) Bainbridge, 1996, Introduction to Computer law, 4 th Ed., Chapters London, Pitman Reed (ed.), 2000, Computer law, 4 th Ed. Blackstone Press Rowland and Macdonald, Information Technology law. Cavendish publishing, Ch. 3 & 4

© M. Scheurer, 2002CT218 Professional Issues25 The End