Negotiating tech contracts into a well-oiled machine: Part 3.

14 October 2020 | Reading time: 2 minutes

    Part 3: The wheels have come off

It is 2 months into your IT project and it is not going well. What do you do?

In this final instalment of our blog series on negotiating IT services agreements, we look at key provisions on defaults and disputes.

On a slippery road, some wheels come off and some wheels stay on.

At what point can a party terminate an IT services agreement?

Well drafted IT services agreements contain provisions detailing the termination rights of each party. These may include termination for:

  1. breach;
  2. insolvency; or
  3. due to a force majeure event.

It is important for termination provisions to clearly specify:

  • the events that would constitute a breach; and
  • the notification process that needs to be followed in order to trigger the termination.

Whilst the wheels may appear to be falling off, a termination trigger can, in fact, provide an opportunity for the parties to work towards an amicable resolution – which will align the wheels and keep them turning.

For long term agreements, it is not unusual for there to be a right to terminate for convenience, where one party may unilaterally exit by giving notice to the other. Well draft IT services agreement will carefully draft the consequences of such termination. This may include early exit fees payable and post termination obligations, such as disengagement services and return of materials.

Taking the right path.

The importance of having a dispute resolution provision in IT services agreements cannot be understated. Well drafted dispute resolution provisions are designed to:

  1. resolve disputes in a prompt and non-confrontational manner;
  2. encourage parties to retain control of how disputes should be resolved; and
  3. provide confidentiality when resolving the disputes.

In the event of a dispute, instead of diving straight into Court proceedings, the contract should contain alternative dispute resolution processes such as escalation to upper management, mediation or expert determination. By engaging in appropriate dispute resolution processes, the aim is for the parties to resolve the issue amicably, at a lower cost, and, importantly, preserve the ongoing commercial relationship.

Driving on the correct side of the road.

If the service provider is in Germany, and the customer is in Australia, which laws apply if a dispute arises? If a dispute is to be referred to a Court, then which Court is in the best position to hear the dispute?

If a dispute arises and there is no governing law clause, the parties will have uncertainty about their legal position. Further, the cost of disputes invariably will escalate whilst the parties argue which laws apply.

As highlighted in our previous blog, it is important to have appropriate governing law provisions in your IT services agreement.

Drive on the correct side of the road and don’t let the wheels come off on your IT project. Whether you’re a service provider or customer, the Bespoke Technology Team will help you understand your rights and obligations and minimise risk exposures with regards to your IT services agreement.