The perfect fit – when is a bespoke ICT contract required?
The new Queensland Information Technology Contracting (QITC) framework provides agencies with four primary contracting options for procuring ICT products and services, one of which is to develop a bespoke ICT contract.
What is a bespoke ICT contract?
A bespoke ICT contract is simply a contract tailored to the unique risks and requirements of an individual procurement.
Under the new QITC framework, there is no prescribed format for a bespoke ICT contract, although it is expected that bespoke ICT contracts will be based on the QITC Comprehensive Contract Conditions.
When is a bespoke ICT contract recommended for use?
The QITC framework recommends that agencies develop a bespoke ICT contract where the individual procurement is assessed as being very high or extreme risk. The value of the contract is irrelevant as it is the level of risk that warrants the development of a bespoke ICT contract.
A contract can be of comparatively low value, but still constitute a substantial risk to an agency. For example, an agency may enter into a contract for the procurement of cloud services which, although provided at a low cost, involves the hosting, management or storage of extremely sensitive information.
The development of a bespoke ICT contract will require increased time and costs to prepare and negotiate. Agencies will need to bear this in mind if they elect to utilise a bespoke ICT contract.
If an agency seeks to develop a bespoke ICT contract by amending the standard terms of the QITC Comprehensive Contract Conditions to meet the agency’s requirements, then the supplier might consider that they should also have an opportunity to propose their own amendments to the standard terms. There is a risk that standard terms could be amended so that they are less favourable to the agency.
Agencies should ensure that they review and comply with any internal procurement and approval requirements for the development of a bespoke ICT contract.
How should a bespoke ICT contract be developed?
As noted, it is expected that bespoke ICT contracts will be based on the QITC Comprehensive Contract Conditions.
There are a couple of fundamental amendments which will need to be made to the QITC Comprehensive Contract Conditions to ensure that the bespoke ICT contract operates effectively.
Firstly, the standard terms will need to be amended to delete clause 1.4 (Additional Provisions) of the QITC Comprehensive Contract Conditions. This is because clause 1.4 prohibits any variation of the standard terms. If clause 1.4 wasn’t deleted, then it would have the effect of rendering any amendments to the standard terms agreed between the parties void.
Secondly, clause 1.3 (Hierarchy) of the QITC Comprehensive Contract Conditions will need to be amended to ensure that any amended or additional terms agreed between the parties take precedence over the standard terms of the QITC Comprehensive Contract Conditions and the applicable Modules for the ICT products and services being procured.
In developing the bespoke ICT contract, an agency should clearly specify that the contract is intended to be a bespoke ICT contract. This could be achieved by amending the title page of the Comprehensive Contract Details to expressly state that it is being used to develop a bespoke ICT contract not a Comprehensive Contract.
The content under the heading 'General Information' in the Comprehensive Contract Details could also be updated to expressly state that the parties are entering into a bespoke ICT contract based, in part, upon the QITC Comprehensive Contract Conditions, with amended and additional terms agreed between the parties.
As the QITC Comprehensive Contract Conditions and Modules are not available in an editable format, the parties will also need to prepare a schedule of all:
- amendments to the standard terms of the QITC Comprehensive Contract Conditions and applicable Modules; and
- additional terms and conditions,
and attach the completed schedule to the tailored Comprehensive Contract Details.
It may also be necessary for the parties to amend the standard form Comprehensive Contract Details and Module Order Forms to correspond with any amendments to the QITC Comprehensive Contract Conditions and applicable Modules. For example, if the parties included an additional term which required the supplier to perform certain obligations as 'stated in the Details', then the Comprehensive Contract Details would need to be amended to include a corresponding line item for specifying the relevant obligations.
What circumstances would warrant the development of a bespoke ICT contract?
The QITC Comprehensive Contract Conditions already provide the parties with a substantial degree of flexibility to specify their requirements in the corresponding Comprehensive Contract Details and applicable Module Order Forms (when read together with the corresponding Modules). However, there may be circumstances where the built-in flexibility is insufficient and the parties therefore need to develop a bespoke ICT contract.
Clause 1.4 (Additional Provisions) of the QITC Comprehensive Contract Conditions provides that the parties may not:
- amend the standard terms; or
- include any additional terms which detract from the parties’ rights and obligations under the standard terms, except to the extent that such additional terms are included to enable an agency to comply with legislative or policy requirements.
Accordingly, any amendment to the standard terms of the QITC Comprehensive Contract Conditions would require the development of a bespoke ICT contract.
The inclusion of any additional terms which detract from, that is, reduce, weaken or undermine, the rights or obligations of either party will also require the development of a bespoke ICT contract, unless the additional terms fall within the narrow exception of ensuring the agency’s compliance with legislative or policy requirements.
Whether or not an additional term detracts from the standard rights or obligations of the parties under the QITC Comprehensive Contract Conditions may be difficult to determine and each party might have their own interpretation of the extent to which an additional term reduces their rights or obligations.
There are a number of examples of circumstances in which the parties might agree to vary the standard terms including the following:
- Where neither of the default, alternative options governing ownership of intellectual property (IP) rights in clause 12 (Intellectual Property Rights) of the QITC Comprehensive Contract Conditions are appropriate for the contract. For example, where the agency would own the IP rights under clause 12.2 (Customer owned New Material) of the QITC Comprehensive Contract Conditions, the agency might not wish to grant the supplier a broad licence under clause 12.2(b)(ii) which would otherwise enable the supplier to commercialise the IP for its own purposes. This might be because the agency wants the sole ability to commercialise the IP, the IP is potentially sensitive or the IP is of critical importance to the agency’s operations.
- Where the supplier’s scope of liability is too narrow. For example, the agency might require the supplier to be liable for Consequential Loss, for example, damage to reputation or loss of goodwill, in circumstances other than those already provided for in the exceptions in clause 17.4 (No limitation) of the QITC Comprehensive Contract Conditions.
The following is an example of circumstances in which the parties might agree to include additional terms which potentially detract from the rights or obligations of the supplier, but are not required for compliance with any legislative or policy requirements:
- Where the agency requires additional contract management rights to ensure the performance of the contract, for example, step-in rights which enable the agency, or its nominated third party service provider, to take over the performance of some or all of the supplier’s obligations under the contract. The supplier might argue that the inclusion of step-in rights potentially “detracts” from the supplier’s right to otherwise perform the contract and to be paid for its performance. The supplier might argue that the step-in rights provision would be void unless the parties created a bespoke ICT contract.
What this means for your agency
The development of a bespoke ICT contract raises a number of potential risks for agencies. It is strongly recommended that agencies obtain legal advice in preparing a bespoke ICT contract to ensure that they’re adequately protected and that the bespoke ICT contract takes effect as intended by the parties.
The information in this publication is provided for general purposes only. It is not to be relied on as a substitute for legal advice. Crown Law and the Department of Justice and Attorney-General accept no liability for losses caused by reliance on the material in this publication. Formal legal advice should be obtained for particular matters.
Published: 28 August 2017
Author: Principal Lawyer, Adam Hall