The Perils of a Badly Drafted IT Contract

You will have no doubt seen the news yesterday about the British tax payer having to foot a £220million bill for the wrongful termination of an IT contract. If you haven’t, take a quick look here or here for some news reporting on the matter.

Leaving aside the painful reality that a Government mistake is going to cost you and me a significant sum of money, it is interesting (for me at least) to try and understand how this judgement was reached and what I (as a lawyer) and you (as a potential user/supplier of IT services) can learn from this debacle.

The thing that sticks out to me is the Government’s claim that Raytheon, the IT contractor involved, had missed a number of key delivery dates (milestone dates as they are often called in IT contracts). This is the first learning point! Always make sure that the key milestone dates for the project (for example, when software modules are to be delivered for testing) are:

1. Clearly defined;
2. Not easily moved; and
3. Subject to sanctions should they not be met.

There is no point in having a key date if there is no punishment for it being missed!

The other issue that struck me was that the Government has been ordered to pay £9.6 million in relation to requests for contractual changes. Change control (as it is called in IT contracts) is one of the more important clauses and must be very carefully drafted. Well drafted change control clauses allow both parties the flexibility to request, and make, changes to the specification mid-contract. However, poorly drafted clauses can tie a party to a specification that does not work or, worse still, force the customer to have to pay significant sums of money to make minor changes.

Now, the above thoughts are merely my musings after reading the news reports on the matter.  I have not seen the actual contract so cannot say for certain what has gone wrong. The above, is a pretty good guess, though. Theresa May MP (Home Secretary), in a letter to Keith Vaz MP (Home Office Committee Chairman) said:

“The Government stands by the decision to end the e-Borders contract with Raytheon. This decision was, and remains, the most appropriate action to address the well-documented issues with the delivery and management of the programme.

“All other alternatives available to the Government would have led to greater costs than the result of this tribunal ruling. Continuing with the contract and trying to rectify the deep rooted problems was estimated at the time as likely to cost £97 million more than terminating it, even with today’s settlement.”

In short, it seems to me that Theresa May MP is pretty much saying “I don’t care what the contract says, the Government will terminate if it wants to”.  Something to bear in mind if you are ever contracting with a Governmental body.

On a final note, it is also worth remembering that this was not a court judgement but the decision of a tribunal at arbitration. The important thing here is that the only way the Government will be able to challenge this decision is if the tribunal made an error in interpreting the law (which is highly unlikely). The Government will not be able to challenge the decision by arguing that the tribunal interpreted the facts of the case incorrectly. This is always worth bearing in mind when considering what form of alternative dispute resolution to agree to in an IT contract!

So, that was a lot of words to pretty much say... make sure your IT contract is properly drafted and, even more importantly, the provisions in the contract are followed, correctly!

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.