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IT Contracts and Dispute Management

A Practitioner’s Guide to the Project Lifecycle

Steven Baker, Lawrence Akka and Rachel Glass

IT Contracts and Dispute Management addresses the law relating to technology projects and the practical, procedural and legal issues which arise at each stage. The authors draw on extensive personal experience of successfully managing IT project disputes from their initial stage through to resolution through a range of dispute resolution mechanisms. Being the only published work in this area relating to English law, the book will be a valuable resource to lawyers acting in connection with procuring an IT project or advising clients on avoidance and resolution of IT project disputes.
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EXTENDED CONTENTS

A Practitioner’s Guide to the Project Lifecycle

Steven Baker, Lawrence Akka and Rachel Glass

Preface

Table of cases

Table of primary legislation

Table of secondary legislation

PART A   OUTSET – BIRTH OF A TECHNOLOGY PROJECT

1   PRE-CONTRACT MATTERS

A   SELECTION OF CONTRACTING PARTY   1.01

B   PRE-CONTRACTUAL DOCUMENTS   1.06

i   Statements of requirements/invitations to tender   1.06

ii   Tenders   1.14

iii   Letters of intent   1.21

a   ‘Non-binding’ letters of intent   1.25

b   Agreements to negotiate   1.27

c   Potential binding terms   1.31

d   Binding letters of intent   1.33

iv   Estimates   1.34

a   A cautionary tale: time estimates in the BSkyB case   1.37

b   A contrast: cost estimates in the BSkyB case   1.40

c   Lessons for suppliers   1.44

d   Lessons for customers   1.49

2   LIABILITY FOR PRE-CONTRACTUAL STATEMENTS

A   CONTRACTUAL LIABILITY   2.02

B   MISREPRESENTATION   2.04

i   The meaning of the statement   2.06

ii   Actionable statements   2.08

iii  Non-disclosure   2.15

iv   Representation by conduct   2.17

v   Statement to the claimant   2.18

vi   Intention   2.19

vii  Inducement   2.20

viii Fraud   2.21

ix   Corporate defendants   2.25

x   Negligent misrepresentation   2.31

xi   Misrepresentation Act 1967, section 2(1)   2.32

xii  Negligent misstatement   2.34

C   REMEDIES   2.35

i   Rescission ab initio   2.35

ii   Damages   2.41

3   CONTRACT NEGOTIATION AND PROJECT METHODOLOGY

A   INTRODUCTION   3.01

B   DEVELOPMENT MODELS: WATERFALL OR AGILE   3.05

C   OTHER PRE-CONTRACT CONSIDERATIONS AND ACCEPTANCE OF TENDER   3.19

i   Dispute resolution provisions   3.19

ii   Internal inconsistencies   3.20

iii  Failure to complete the drafting process: starting work without a signed contract   3.21

iv   Agreement on essential terms   3.27

v   Incomplete agreements   3.33

vi   Conditionality: requirement for a formal contract   3.36

vii   Acceptance of tender   3.40

PART B   NURTURING, MAINTAINING AND DELIVERING THE PROJECT

4   THE CONTRACTUAL FRAMEWORK

A   OVERVIEW   4.01

B   STATEMENT OF WORK   4.07

C   FUNCTIONAL AND DESIGN SPECIFICATIONS   4.09

D   PROJECT PLANS   4.14

E   IMPLICATION OF TERMS   4.16

i   Implication as a matter of fact   4.17

ii   Implication as a matter of law   4.21

iii  Software: goods or services   4.26

5   HOUSEKEEPING

A   RISKS AND CONSEQUENCES OF NOT ADHERING TO CONTRACTUAL TERMS   5.02

i   Breach of contract   5.02

ii   Estoppel   5.08

a   Estoppel by convention   5.08

b   Estoppel by representation and promissory estoppel   5.10

c   ‘Contractual estoppel’   5.14

iii  Waiver   5.16

a   Use of the term ‘waiver’   5.16

b   ‘No waiver’ clauses   5.17

iv   Acquiescence   5.19

v   Variation   5.21

a   Requirements at common law   5.21

b   Contractual requirements   5.27

c   Variation or rescission?   5.33

vi   The giving of notices   5.38

a   Notices ‘in writing’ and by email   5.40

b   Contractual notice requirements   5.44

c   Notices containing errors   5.52

d   ‘Reasonable notice’   5.57

6   PROJECT MANAGEMENT

A   COOPERATION BETWEEN SUPPLIER AND CUSTOMER   6.01

B   RESOURCING THE PROJECT THROUGHOUT ITS TERM   6.10

C   MANAGING THE EVOLUTION OF PROJECT REQUIREMENTS   6.18

D   DUTIES OWED BY A CONSULTANT   6.23

E   CHANGE CONTROL   6.24

i   Changes in scope   6.24

ii   Change control processes   6.27

a   Change requests   6.27

b   Assessing the impact and cost of the change   6.29

c   Approval   6.30

d   Recording changes   6.32

F   RECORD MAINTENANCE   6.34

i   Types of ‘document’   6.36

a   The contract   6.40

b   Drafts and negotiation materials   6.42

c   Minutes of meetings and notes of calls during the project   6.44

d   Other categories of documents   6.46

ii   Document retention following completion of the project   6.48

7   DELIVERY AND ACCEPTANCE

A   REASONABLE/BEST ENDEAVOURS   7.01

i   ‘Reasonable’ and ‘all reasonable’ endeavours   7.07

ii   Best endeavours   7.12

B   PRIME AND SUBCONTRACTING   7.17

C   LICENSING   7.22

D   CONTRACTUAL INDEMNITIES   7.28

8   TESTING

A   OVERVIEW   8.01

B   BUG TOLERANCE   8.05

9   OTHER ASPECTS OF PERFORMANCE

A   BENCHMARKING   9.01

B   SERVICE CREDITS   9.05

i   Background to service levels and service credits   9.05

ii   Negotiating service levels and service credits   9.10

iii  How are service levels to be defined?   9.13

iv   How will service credits be structured/applied?   9.19

v   An exclusive remedy?   9.24

vi   Is a customer’s exercise of a service credits regime constrained by the common law?   9.25

vii   Impact of the law on penalties/liquidated damages upon service credits   9.28

viii  If it applies, how does the law on penalties apply to service credit regimes?   9.31

ix   Practical steps in operating service credit regimes   9.34

10   DELAY

A   INTRODUCTION   10.01

B   TIME FOR PERFORMANCE   10.03

C   BREACH   10.08

D   TERMINATION AT COMMON LAW   10.10

E   PREVENTION PRINCIPLE   10.17

PART C   IN SICKNESS AND IN HEALTH – THE AILING PROJECT, INTERIM DISPUTE RESOLUTION AND RESUSCITATION

11   PROJECT RESCUE

A   INTRODUCTION   11.01

B   PRESERVING TIME FOR NEGOTIATION   11.08

C   COMMON APPROACHES TO PRESERVING TIME AND RESOLVING DISPUTES MID-PROJECT   11.13

i   De-scoping   11.13

ii   Use of heads of terms to record ‘in-project’ dispute settlement   11.17

D   STANDSTILL AGREEMENTS   11.23

i   Suspension of rights and agreements not to sue   11.26

ii   Cessation of work   11.38

iii  ‘Time-bar’ considerations   11.48

iv   Other losses of rights   11.56

v   Steps required to effect a standstill   11.58

vi   Standstill agreements: common issues   11.62

vii   Potential benefits of a standstill agreement   11.68

E   STEP-IN RIGHTS   11.71

12   REPRESENTATIONS WHEN RE-BASELINING

A   INTRODUCTION   12.01

B   RELIANCE   12.06

C   A REAL LIFE ILLUSTRATION OF ALLEGED MISREPRESENTATION DURING RE-BASELINING: THE BSKYB V EDS LITIGATION   12.10

13   TERMINATION RIGHTS

A   EXPRESS TERMINATION RIGHTS AND CURE PROVISIONS   13.01

i   Termination for convenience   13.03

ii   Options to terminate on occurrence of specific event   13.06

iii  Termination for cause   13.07

a   Material breach   13.12

b   Failure to make payments   13.20

c   Licensing   13.24

d   Other clauses: any breach and substantial breach   13.27

iv   Remediability   13.39

B   COMMON LAW TERMINATION: REPUDIATORY BREACH   13.47

i   The common law and its interaction with the parties’ agreement   13.47

ii   Identifying repudiatory breach of a technology project contract   13.55

C   PRESERVATION OF TERMINATION OPTIONS   13.70

i   Election, acceptance and affirmation   13.70

ii   Other losses of rights: party in breach takes remedial action   13.82

iii  ‘Cooperative contracts’; impact of termination rights   13.86

D   RESERVING RIGHTS   13.89

i   Reserving rights generally   13.89

ii   Interrelationship of affirmation and ‘no waiver’ provisions   13.90

E   PRACTICAL IMPLICATIONS   13.95

i   Operational issues   13.95

ii   Suspension of work   13.97

F   TERMINATION PROCEDURES   13.102

G   EXIT CLAUSES AND IP TRANSFER   13.107

14   PROJECT ‘RESUSCITATION’

A   INTRODUCTION   14.01

B   ROLE OF CONTRACTUAL GOVERNANCE AND ESCALATION PROCEDURES: SETTLEMENT CONSIDERATIONS   14.03

i   Settlement vs independent ruling   14.04

ii   What impact is the dispute having on the project?   14.05

iii  How many parties are (or may be) involved in the dispute?   14.08

iv   Do the other parties’ interests align?   14.12

v   Are the parties concerned to keep the dispute confidential?   14.13

vi   Can a clear assessment be made of potential liabilities if the dispute progresses to trial, final arbitral hearing or other forum outside of the parties’ control?   14.16

vii   What resources will be needed to progress the dispute?   14.19

viii  What is the state of the relationship between the contracting parties? Does the importance of the dispute mean that it must be resolved immediately, even if settlement is impossible?   14.21

ix   Is settlement a useful pretext to agree wider changes to the project?   14.24

x   Practical considerations if settlement is pursued   14.26

xi   When should settlement be proposed?   14.27

xii   Identifying all relevant parties   14.29

xiii  Who will conduct the settlement negotiations?   14.33

xiv   What is the forum for settlement negotiations?   14.37

xv   Will negotiations be ‘without prejudice’?   14.38

xvi   ‘Without prejudice to a party’s position’ vs without prejudice privilege – what is the difference?   14.56

xvii   What are the substantive terms of settlement?   14.58

xviii  Are all actual and contingent liabilities being settled?   14.60

xix   Are obligations under the settlement agreement intended to be conditional?   14.64

xx   Do the parties intend only to compromise part of the dispute?   14.66

xxi   What enforcement mechanisms do the parties intend should be available in the event that the settlement agreement is breached?   14.68

xxii   Other effects on the existing contract   14.70

C   Preserving claims: potential pitfalls   14.73

i   Scope of the reservation of rights: are some matters being settled, while the parties seek to preserve rights in respect of other matters?   14.75

ii   Is there a risk of waiver of accrued rights?   14.77

iii   Waiver by estoppel   14.79

iv   Waiver by election   14.81

v   Time-bar   14.83

vi   Limiting risks of loss of rights   14.84   

15   INTERIM DISPUTE RESOLUTION

A   ESCALATION CLAUSES   15.02

i   Introduction   15.02

ii   Common structures   15.05

iii  Advantages and disadvantages of escalation clauses   15.11

iv   Enforceability   15.31

v   Drafting considerations   15.47

vi   Further considerations at the mid-project stage   15.50

B   DISPUTE BOARDS   15.51

i   Overview   15.51

ii   Advantages and disadvantages of dispute boards   15.70

iii  Case law relating to dispute boards   15.79

16   ENFORCING A CONTINUING RELATIONSHIP

A   DECLARATION   16.02

B   INJUNCTION AND SPECIFIC PERFORMANCE   16.04

C   FINAL INJUNCTION   16.10

D   INTERIM INJUNCTION   16.14

i   Prospects of success   16.15

ii   Adequacy of damages   16.17

iii  Balance of convenience   16.28

iv   Undertaking as to damages   16.31

v   Mandatory injunction   16.32

vi   Prevention of termination   16.39

E   SPECIFIC PERFORMANCE   16.51

F   DISCRETION   16.54

PART D  QUANTIFICATION OF CLAIMS FOR COMPENSATION

17   QUANTIFICATION OF CLAIMS FOR COMPENSATION

A   INTRODUCTION   17.01

B   DAMAGES FOR BREACH OF CONTRACT: GENERAL COMMENTS   17.06

i   Introduction   17.06

ii   The compensatory principle   17.09

iii  Contractual or liquidated damages   17.14

a   Primary vs secondary obligation   17.18

b   The test of whether something is a penalty clause   17.20

iv   Damages on the wasted expenditure basis   17.27

v   The claimant’s choice, and the overlap between lost benefit and wasted expenditure claims   17.33

vi   Burden and standard of proof, causation and remoteness   17.36

vii   A ‘trap’ for the unwary? Termination clauses   17.42

viii  Losses suffered within a group of companies   17.43

C   DAMAGES ON THE LOST BENEFIT BASIS   17.50

i   Difference in value   17.53

ii   Cost of restoration: repair and replacement   17.58

iii  Overlap between damages and cost of mitigation   17.62

iv   Cost of a replacement system as reasonable mitigation of continuing losses   17.63

v   Examples of recovery of the cost of a replacement system   17.69

vi   Loss of future profits   17.78

vii   Anticipated savings   17.86

viii  Additional out of pocket expenditure   17.95

ix   Additional or ‘wasted’ staff time   17.97

x   Preservation of customer goodwill   17.104

xi   Effect on loss of benefit damages of a right to terminate for convenience   17.105

D   DAMAGES ON THE WASTED EXPENDITURE BASIS   17.108

i   Monies paid to supplier   17.109

ii   Out of pocket expenditure, consultants’ fees and wasted staff time   17.115

iii  Damage to existing business   17.116

iv   Mitigation   17.117

v   Savings from alternate system   17.118

E   SUPPLIER’S CLAIMS   17.119

F   GLOBAL CLAIMS   17.120

i   Factual basis   17.124

ii   Loss not incurred ‘in any event’   17.127

iii  Matters for which the defendant is not responsible   17.130

iv   Separating claims   17.132

G   DAMAGES ON THE TORTIOUS BASIS   17.137

i   Misrepresentation in technology projects   17.139

ii   Damages for fraud   17.143

iii  Concurrent claims in contract and tort   17.147

H   PARTICULAR CHALLENGES WITH LONG-RUNNING DISPUTES   17.148

i   Technology develops beyond the contracted solution   17.148

ii   Retaining a legacy system for baselining   17.161

I   ENFORCEMENT OF CONTRACTUAL INDEMNITIES   17.164

i   Indemnity as a debt claim   17.164

ii   Indemnity following breach of contract   17.174

iii  Claims under an indemnity for losses which would otherwise be too remote   17.180

iv   Is the indemnified party required to mitigate its losses?   17.189

v   Other limitations   17.193

J   MITIGATION – PRACTICAL STEPS   17.198

i     Overview   17.198

ii   Hardware   17.200

iii  Software   17.202

iv   Other actions   17.207

v   Overlap between mitigation and repudiatory breach   17.209

18   EXEMPTION/LIMITATION CLAUSES

A   INTERPRETATION   18.04

B   DELIBERATE BREACH   18.08

C   EXCLUSION OF LIABILITY FOR CONSEQUENTIAL LOSS   18.13

D   CONTRA PROFERENTEM   18.16

E   THE UNFAIR CONTRACT TERMS ACT   18.20

PART E  CONDUCTING TECHNOLOGY CONTRACT DISPUTES

19   FORUM FOR RESOLVING DISPUTES

A   The civil court system   19.02

i   Pre-action   19.13

ii   Initial procedural timetable   19.18

iii  Designation of judge   19.21

iv   Case management conference and procedural matters   19.22

B   Arbitration   19.24

C   Mediation   19.28

i   Structure of mediation   19.32

ii   Benefits of mediation against non-facilitated negotiation   19.43

iii  Choosing a mediator: industry expert or lawyer   19.47

iv   Interim mediations: impact on ongoing project   19.53

D   Expert determination   19.57

i   The expert determination clause   19.60

ii   Naming the expert   19.65

iii  Defining ‘technical disputes’   19.69

iv   Reasoned decisions   19.72

v   Challenging the decision   19.75

vi   Enforcement   19.81

vii   Impact on an ongoing project   19.82

20   DISCLOSURE

A   Introduction   20.01

B   Solicitor’s overriding duty to the court   20.05

C   Document preservation   20.10

i   When should document preservation first be considered?   20.11

ii   Key steps in the preservation of documents   20.15

iii  The ‘document hold’ notice   20.19

iv   Potential consequences if disclosable documents are destroyed   20.25

v   Electronic disclosure   20.28

a   Electronic data   20.31

b   Electronic Documents Questionnaire (EDQ)   20.35

c   E-disclosure in cases before the Technology and Construction Court (TCC)   20.42

d   Types of electronic documents   20.46

e   Storage media   20.47

f   Encryption   20.48

g   Third-party suppliers of eDisclosure services   20.51

h   Review   20.53

D.   Common practical issues with inspection   20.59

i   Documents inaccessible/unreadable without specialist equipment and facilities   20.60

ii   Maintaining confidentiality of disclosed documents   20.62

iii  Demonstrations and access to working examples   20.65

21   WITNESSES

A   Witnesses of fact   21.01

B   Expert witnesses   21.06

i   Practicalities   21.07

ii   Role and duties of the expert   21.11

iii  Instructing experts   21.18

a   Guidance   21.18

iv   Substitution of experts   21.21

Index