Contracting for Information Technology Services

• “Use of Licensed Software” refers to contracting for use of a SaaS application “off the shelf” without modification, improvement or enhancement to suit the business needs of a particular customer.
• Off the shelf products are usually cheap to buy and low risk in that if the product doesn’t work, then the customer’s remedy is to stop using it and terminate the subscription or seek a refund of any one-off payment made. Depending on the circumstances, a refund may or may not be available.
• A contract for the provision and/or maintenance and support of software can also be tailored to the customer’s specific needs.
• If a tailored contract is being entered into the customer needs to pay a higher level of attention to the legal and commercial terms of the contract because the risk to the customer is increased in a number of ways.
• For tailored agreements, carry out appropriate due diligence on the supplier which should include at a minimum:
  • Its reputation in the market; and
  • Corporate/financial stability of the supplier

(see related article on “Due Diligence” for further guidance on how to understand who you are dealing with).

• Pay particular attention to:
  • Understanding the exact nature and scope of the services/deliverables and the service levels that the supplier is promising to provide
  • Price/fees – how the pricing is structured, the scope for variation (especially arbitrary increases by the supplier) and the ramifications for late or non- payment
  • The liability of each of the parties (including any cap on the supplier’s liability to the customer for failure to deliver in accordance with the contract)
  • Security measures the supplier has in place protect customer data and the customer’s obligations in relation to how it uses the product
  • Obligations in relation to confidentiality and privacy
  • how the contract can be terminated and supplier’s obligations to assist the customer to manage transition into use of the product (including training) and transition out on expiry or termination.