SKU: 35 Category:

Contract for the purchase and supply of computer hardware, the licensing or sublicensing of software; their installation and testing together as a system using customer’s acceptance tests and finally, their “bringing into service” with no payment due by the customer until the customer is satisfied. This Contract is drafted for the customer’s protection. Read moreRead more



Whilst the Explanatory Note to Contract 34 discloses some of the ways in which a Contractor in a turnkey arrangement can minimise its exposure, responsibility and therefore liability, this Contract is drafted for the Customer’s protection.

 Indeed, the payment clause is structured so that the Customer pays nothing until: (a) the Customer alone is satisfied that the system recommended and supplied by the Contractor performs the functions which the Customer expects and which the Contractor should have ascertained that the Customer required (see Clause 4 of this Contract); and until (b) the source materials for the Bespoke Software have been delivered to the Customer and the source material for the Contractor’s and third-party software has been delivered into escrow (see Clause 5). Only when (a) and (b) have been accomplished to the satisfaction of the Customer, should the Customer issue an Acceptance Certificate, which triggers payment to the Contractor.

 There is no provision for approval of a specification by the Customer since this would transfer some of the onus of responsibility for choice of the end product onto the Customer. There is instead the onerous obligation on the Contractor to properly ascertain the Customer’s requirements and the express reliance placed by the Customer on the Contractor so to do.

 It is important, however, that the Customer defines the acceptance test criteria upon which the Customer’s satisfaction of the system will be established and payment made. Such test criteria is often very technical and difficult to define properly, therefore the Customer may require the assistance of an independent technical consultant if the Customer has no in-house expertise (see Contract 44) since failure of the system to pass such acceptance tests entitles the Customer to withhold payment and either require a re-work by the Contractor for a re-testing or at the Customer’s option reject the total system and have the work to date transferred to the Customer or another contractor (Clause 15(g)).

 It is also important, if timing of the introduction of the system into the Customer’s business is important, that the timetable, to be agreed between the parties, should have firm commitment dates from the Contractor, which dates should be enforced by a liquidated damages clause (see Clause 5(d)) in the event of slippage.

 The Customer should optimally contract on a fixed-price basis, especially with respect to the provision of bespoke software development services, which would otherwise be charged on either a “time and materials” or “man-hour” basis. If the latter is agreed, the definition of “man-hour” must be agreed between the parties since, in practice, it can vary considerably from contractor to contractor.

 As mentioned above, the copyright in bespoke software should belong to the Customer and the source code, object code and other materials delivered to the Customer. Owning the software will also mean that the Customer is not tied to the contractor for continued support or future enhancement. To ensure such delivery, the Customer should only sign the Acceptance Certificate and pay any part of the contract price once that has occurred. If possible, the Customer should also try to have the source material of other key software incorporated into the system deposited in escrow (see Explanatory Note to Contract 12) to ensure the Customer’s continued, uninterrupted use of the system notwithstanding default or liquidation of any software supplier.

 It can often be relevant in certain situations, though seldom addressed in such contracts, that the development of bespoke software and the bringing together of the system is not performed on the Customer’s premises if this is at all possible, since the disruption caused in such customisation can be considerable in terms of Customer expense and man-hours lost not only in general “assisting” of the Contractor but also in facilitating development on-site.

 Accordingly, this Contract provides for the Contractor’s presence on-site during ascertainment of the Customer’s requirements and for the Contractor to appear back on-site only when the System is ready for testing.

 Finally, once the Customer has installed and accepted the new system, the Customer should ensure that the Contractor undertakes , if so required by the Customer, to continue to support that system for some reasonable period of time (see Clause 10(d)(iv)).