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Sun 17 Aug 2008 04:00 AM

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Procurement and planning II

Cameron Crawford of the Rights Lawyers examines the legalities of post-completion services, testing and warranties.

Cameron Crawford of the Rights Lawyers examines the legalities of post-completion services, testing and warranties.

Last month, we looked at what should be taken into consideration when approaching procurement contracts and how to effectively plan for them. However, the role of testing and warranties can also be important in securing a reliable deal structure.

As the testing procedure for many acquired IT systems does not take place until after the systems have been largely installed and the programming written, it is important to allow for this in the terms agreed.

While delivery may have to be made by a certain time, there will also be further work done to iron out any glitches in the system.

A reasonable balance to strike may be to require the IT systems provider to seek in good faith to meet all standards.

Making payment contingent upon passing a testing process does not address the reality of the project - namely that bugs will be identified and improvements required which may only come to light when the systems have been put in place , but which should not be considered a breach of contract.

However, standards and deadlines must be set in order to ensure that both parties agree upon and are aware of what is required under the contract and that the expectations of the procurer are matched.

This is best achieved by allowing for a testing procedure with provisions for rectifying bugs and errors which do not unnecessarily penalise minor defects, yet allows the procurer to terminate or receive appropriate compensation in the event that the project has failed to progress to the extent that the delays may harm the procurer's business.

The contract should also provide for situations in which the supplier performs to specification but where the procurer wishes to amend the system following the first demonstrations of how it will work in actual practice.

Warranties are, effectively, promises as to quality and degrees of performance that parties to a contract make in addition to deliverables, the latter tending to be more cut-and-dried.

In order to protect the interests of the procurer (and to set a clear benchmark to which the supplier can set its performance standards), warranties can be tied in to the testing procedure and penalties prescribed for breach of these warranties that most adequately address the needs of the party acquiring the IT system.

For example, if it is likely that there may be other companies who can be used as an alternative supplier, the company may wish to reserve the right to terminate if defects are not remedied within a relatively short period of time and with minimal compensation payable to the provider.

Essentially, warranties should cover all risks that can be identified to the greatest extent possible in the circumstances.

Some warranties, such as the supplier representing that it owns or has the right to use all software supplied, should be absolute whereas others such as those relating to attaining a goal which may be more subject to a number of variables can be more diluted, on a ‘best endeavours' or a ‘reasonable endeavours' basis.

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