When IT contracts go wrong

A good contract prevents costly mistakes and arguments

A good contract can save time and money on even the most basic issues. However, they are at their most important when the big things need to be worked out and agreed upon. One problem is that there is often not a consensus as to what the big things could be. Here are some examples of what happens when IT contracts go wrong.

Supplier versus Distributor

There is always a potential for problems when there are more than two parties involved in a deal. When customer, supplier and distributor don’t all work as a team, things can end up in court, as in one such case: A standard agreement was drawn up where a supplier was required to pay a distributor for distributing software. This fell apart when the customer didn’t pay the supplier, leaving the supplier unable to hold up their end of the deal with the distributor. The distributor was understandably unhappy about this and took the supplier to court to get paid.

Who owns what?

When writing software the program is written in two languages – there is the source code which is what the developer actually works in, and the object code, which is the machine-readable version - this is the program that is licensed. The source code for the program is sometimes then held by a neutral third party (an escrow agent) to ensure its availability in certain events. This is called an escrow agreement. The software source code is released to the licensee if the licensor files for bankruptcy or otherwise fails to maintain and update the software as promised in the software license agreement.

In one such case where the licensor was unwilling to maintain the software as agreed, the escrow agent was required to hand over the ‘source materials’ which included not just the code, but the documentation and a listing of the relevant third party products.

However, the documentation for the software was buried inside the source code which brought about the disagreement - was the supplier required to actually reproduce the documentation and put together a proper manual for the source code?

When it all goes pear-shaped

A New Zealand based textile company ended up high and dry after they engaged a Canadian company to do an overhaul of their stock and delivery system. The new system was to control everything and the company expected this was the case until they realised when they launched that they could not check their stock or send out invoices.

They hadn’t paid enough attention to their contract – The agreement was bare minimum, written under Canadian law. It provided for little testing and support only during Canadian business hours. Essentially the new system did not work, and there was nothing that the beleaguered company could do about it.

In order to get back in business the textile company had to pay more money to engage a local company to come in and fix the mess of the Canadian system.



IT Contract Templates allow for all these situations in an easy to use format, and help safeguard against events going majorly wrong and ending up in court, or a business losing money due to a poorly written agreement. And all the hard-to-understand concepts are clearly written out, so there’s no way to miss anything.

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