Finalising IT project contracts can be lengthy, and for this reason, suppliers may take the risk by not agreeing IT Project Contracts before project delivery. However, commencing work without a comprehensive signed contract should be avoided for a number of reasons, including but not limited to:
Risks to the supplier
Without a contract in place the supplier:
- Lacks contractual protection for any costs incurred before the contract is signed and may struggle to accurately estimate charges (or lose out on recovery of costs) for the entire project without defined scope and deliverables.
- May not be able to recover interest on any unpaid charges.
- Has unlimited liability to the customer.
- May be bound by the customer’s terms (if the customer has shared their terms with the supplier and depending on the circumstances in which they were shared).
Risks to the customer
Without a contract in place the customer:
- Has no assurance that the work will meet their requirements or timelines.
- Lacks contractual protections like indemnities or warranties.
- May face unexpected costs if the scope of work changes or if additional work is required.
- Has limited legal recourse if the supplier fails to deliver as promised.
- The ownership of any intellectual property created during the project may remain with the author of the same, leading to uncertainty regarding usage rights.
A flexible contract – agreeing IT Project Contracts before project delivery
If it is uncertainty regarding the actual project requirements that holds up the finalisation of the contract, it is possible to deal with project unknowns by carefully crafting the contract to enable flexibility, for example:
- The supplier and customer could enter a proof of concept contract prior to the main contract to enable the supplier to perform scoping activities to define the specification, project plan and charges for the main project; or
- Agreeing a framework agreement with the first deliverable of the project being a scoping activity to determine the project requirements and costs. With this option, it is crucial to carefully manage the change control procedure to allow for alterations to the obligations.
Conclusion
In conclusion, while the process of finalising IT project contracts can be protracted and complex, it is crucial to resist the temptation to commence work without a signed agreement. Both suppliers and customers face significant risks without a formal contract, including financial uncertainties, legal vulnerabilities, and potential project delays. By carefully crafting contracts to accommodate project unknowns, such as through proof of concept agreements or framework agreements with initial scoping activities, both parties can ensure a clear, flexible, and legally protected path forward. This approach not only mitigates risks but also sets the foundation for successful and collaborative project delivery.
We at Stephens Scown LLP have expert technology and intellectual property lawyers who can help craft IT contracts to best suit the requirements of the client, and if you would like to know more, please do contact us via email at enquiries@stephens-scown.co.uk or by phone at 0345 450 5558.