Understanding the contract we are signing

Perhaps you know the feeling: you’ve at last found the IT system or the piece of software you’ve been looking for to make your business run more smoothly. The company you’ve found are organised and professional to deal with. The system appears to do what you need it to. Customer references are good.

So, all you need to do is sign on the dotted line to agree their ‘standard terms’?

However, before you sign are you really sure what their ‘standard terms’ are?

We sign contracts all the time, without reading them. Have you ever, for example, read the contract that applies when you buy a train ticket? A client of ours did and after a long delay (no doubt caused by the wrong kind of snow or leaves on the line!), which ruined a meeting, he realised he couldn’t make a claim.

It can be difficult to make time to read such contracts. When I started to read the small print at my dentist recently I was very frostily told that ‘it’s just the normal agreement’. What, though, is the normal agreement?

When ‘standard’ terms and conditions are negotiable

The word ‘standard’ in this context normally means standard to the person who is suggesting them. Almost all businesses have differing terms on which they are prepared to do business.

I don’t suppose the dentists would agree a change of terms, nor certainly would someone selling software on a CD with a “click to agree” licence (often called a “shrink wrap licence”) but, if you are making a more substantial purchase, a supplier may be prepared to discuss parts of their terms, such as delivery times, promises of performance and so on.

So before you sign a contract what do you need to look out for?

Payment

When is it due?
Is the amount correct?
If it is a continuing contract, how will price increases be dealt with?
Would paying by instalments help you if there were problems with your purchase?

Intellectual property

Who owns the copyright? (It’s normally the creator which in the case of software is the developer.)
If the developer transfers the copyright to you but not the intellectual property in the underlying
structure (often this is the source code) then how do you get hold of that if they cease trading?
Do they warrant (promise) that they own the right to sell the item to you?

Warranties (Legally binding promises)
This is an example of a warranty that is very much in favour of the supplier:

“We warrant that:

(a) We have a right to license the Software to you; and
(b) For a period of 90 days from the software being installed, it will materially conform to the claims we make for and provide with it.

However, we do not warrant that the Software will be error or virus free as all software is inherently unstable.”

So to protect yourself as a buyer try to ensure you have:

A warranty that explains the functionality you need.
An assurance that it will do the things you want it to. We suggest that you set out these requirements on a list which is attached to the contract and signed by you and the supplier.

Term (How long have you got it for?)

Is it for a fixed period of time? If so, what are you going to do after that time?
If not for a fixed period of time, what happens if they upgrade it, change it, Euros are introduced in the UK and so on?

SLAs (Service Level Agreements)
or “what if something goes wrong”

Is there an agreed response time?
Is there an escalation process if the problem isn’t solved?

To summarise, if you are buying a business critical item, especially items such as IT systems and software, we’d suggest you follow this simple process:

Ask to see the supplier’s ‘draft’ terms.
Make a note of all the basics that you’ve requested and agreed and crosscheck your list against their terms.
Consider each of the questions posed in this article.
Ask yourself the “what ifs” including the uncomfortable ones.
Ask for changes to the terms where you are concerned
If you are unsure, do not sign. Take advice from someone who understands the legal side but also the business issues relating to your purchase. They will make you aware of any potential risks you are taking.

Contact Cousins Business Law for advice on this topic.

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