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Telecoms service contracts
Telecoms service contracts
TELECOMS SERVICE CONTRACTS TELECOMMUNICATIONS SERVICE CONTRACTS — THE LEGAL IMPLICATIONS Mark Moncreiffe
This paper examines the potential difficulties arising when contracting for the supply of telecommunications services. It also provides guidance as to how to tackle such problems when they arise.
INTRODUCTION The supply of telecommunication services raises a number of legal issues to be addressed by the purchaser.The first step is to decide on the structure of the contract under which the services are to be supplied.The most common options are as follows: • if the purchaser has the relevant expertise, it can purchase and manage its own telecommunication systems in-house; • the purchaser may wish to continue its relationship with its existing telecommunications operator in which case a hardware purchase agreement may be required as well as a services agreement; • the purchaser may invoke a tendering procedure to select its supplier of telecommunications services.The purchaser should then select from the tendering process a first and second choice supplier and enter into negotiations; • the telecommunications function of the business may be outsourced to a third party supplier. Outsourcing normally involves the transfer of an in-house department (with its assets, contracts and employees/staff) from the purchaser to the supplier under a transfer agreement. The supplier then provides the same services back to the purchaser by way of a services agreement. I shall focus on the potential problems relating to the services contract in respect of the supply of telecommunications services and how to avoid them.These areas will apply equally in some cases to the purchase of equipment with a maintenance/support agreement.
Pre-Contract Steps Certain practical steps should be taken before the contract is drafted so as to minimize the risk of poor performance by the supplier.These include the following: * selecting the supplier according to specified criteria; * negotiation of key commercial requirements; * if there is a transfer arrangement, the purchaser should respond to the supplier’s legal, financial and commercial due diligence enquiries; * both parties should consider the appointment of a project management team to negotiate the commercial aspects and deal with the ensuing day-to-day management of the contract.
SUPPLY OF EQUIPMENT AND SERVICES — AN OVERVIEW Equipment It can be relatively straightforward to determine whether equipment has been correctly supplied.Telecommunications equipment delivered to the purchaser can be physically inspected or tested to ensure that the equipment conforms to a particular specification. Key areas to focus on in respect of the supply of equipment are as follows: * Description: Define the hardware/equipment in as much detail as possible. * Delivery: Fix a delivery date and set out in the contract the remedies available to the purchaser if delivery is delayed or cancelled. * Installation : A clear acceptance procedure may be required to establish whether the hardware/equipment conforms to its specification. If it does not, the equipment may be rejected, or accepted subject to an abatement of fees or further remedial action being undertaken. * Warranties:The purchaser can reasonably expect the supplier to warrant that the equipment will: – be of satisfactory quality and fit for its purpose; – conform to its specification; – be free from defects for a given period of time; – be free from any encumbrance; – not infringe any third party intellectual property rights; – be supplied with adequate documentation/ information for the purchaser to make full use of it. * Title and Risk/Insurance: It must be clear when title and risk in the equipment pass to the purchaser for the purposes of insurance.
Services With regard to the supply of services, it is more difficult to measure whether the supplier is performing them adequately unless the contract is drafted very carefully. The purchaser’s requirements must be set out accurately within the contract so that if the purchaser is dissatisfied with the services it can
Computer Law & Security Report Vol. 16 no. 1 2000 ISSN 0267 3649/00/$20.00 © 2000 Elsevier Science Ltd. All rights reserved
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Telecoms service contracts
enforce its rights against the supplier. The requirements should be set out in a detailed services schedule coupled with a service level agreement setting out key performance indicators and targets.
Maintenance/Support A maintenance/support agreement is essentially a services contract and therefore the same issues will apply. However, there are certain specific questions to be considered: * is the maintenance to be provided preventative or corrective? * are response times and out-of-hours support adequate for the purchaser’s needs? * will the supplier provide upgrades, new releases and modifications as part of the services? * will Year 2000 errors be covered?
General The purchaser should also be aware that: * its requirements may change during the course of the contract owing to changes in its business; * the nature of the telecommunications industry is constantly changing: there can be many technical, commercial and regulatory changes and upgrades even within a short time frame; and * costs may decrease as technology becomes more advanced. Therefore, the purchaser should try to limit any potential increase in the supplier’s charges and, if appropriate, certain cost-based reductions should be factored into the contract.
THE SERVICES CONTRACT — AN OVERVIEW Once the purchaser has selected the supplier and decided how to structure the transaction, the parties‘ ongoing relationship will be governed by the services contract which should at least cover the following: * each party’s rights and obligations to the other and a clear statement of the purchaser’s requirements; * appropriate remedies for any failure to meet those obligations; * development of the services as and when required and provisions to deal with any changes; * measurement of the supplier’s performance, a right of audit for the purchaser and an escalation procedure to remedy serious problems. The aim of the services contract is to balance the conflicting needs and requirements of both parties and to ensure their relationship runs smoothly.
IMPORTANT CLAUSES IN THE SERVICES CONTRACT Term There are different, sometimes conflicting, considerations in settling on the length of the services contract. If the services
44
contract is part of an outsourcing arrangement and the supplier has purchased the assets, contracts and personnel of the purchaser at the start of the relationship, it will normally be in the best interests of both parties to have a medium to long term contract so that the supplier can recover its initial costs over time rather than imposing high initial service charges on the purchaser. However, the purchaser may want some type of probationary period to satisfy itself that the supplier is able to deliver all the required services or at least have a fixed initial period so that if the purchaser is not satisfied with the supplier it can switch to another supplier without being heavily penalized.
Payment Terms Apart from the actual costs, which should be clearly set out (possibly in a schedule), the main concerns will be: * when payment is due; * how payment is made, and * what happens if the purchaser defaults or if payment is delayed, e.g. should there be interest on late payments?
The Services Description A full and accurate description of the services to be provided by the supplier should be set out. The purchaser will know what services it requires and the supplier will know what it can reasonably deliver.This will require commercial negotiation between the parties.
Warranties As well as specifying the exact services to be performed there may also be certain general warranties relating to the standard of the services.The purchaser can reasonably expect the supplier to warrant and undertake that it will: * perform the services with reasonable care and skill; * provide suitable, qualified and experienced staff to carry out the services.The supplier should procure that its personnel will comply with any relevant management procedures or confidentiality undertakings that the purchaser may reasonably require; * provide the services in a timely and efficient manner, and * comply with good practices and standards within the telecommunications industry. These general warranties may be difficult to measure but it gives the purchaser some leverage in the future and a degree of protection in the event that the specific service requirements are lacking.
Service Level Agreements The Service Level Agreement sets out the key performance indicators and targets linked with the service descriptions. It is often difficult at the outset of a contract to decide how to measure and assess the performance of a particular service. Therefore, the purchaser needs to have in place specific procedures for monitoring and auditing the supplier’s perfor-
Telecoms service contracts
mance throughout the term of the contract. These may include: * regular review meetings; * detailed reports, and * a right of audit for the purchaser to review the supplier’s data and systems.
Remedies Inadequate telecommunications network services can have a severe effect on a company’s business. Therefore, remedies need to be appropriately crafted and you should consider the following:
Termination Not renewing a contract at the expiry of a fixed term is one option. Another is to terminate early as a result of a serious failure to perform.The purchaser should be entitled to terminate the contract in the following situations: – a material breach of contract. There may be a provision which entitles the purchaser to terminate the contract upon a material breach of contract by the supplier provided that it has given the supplier a certain period of time (such as 30 days) to remedy the breach (if such breach is capable of remedy); – persistent or repeated breaches of contract.There may be a series of minor issues which may not, viewed separately, constitute a material breach of the contract, but which may be so detrimental to the relationship between the parties, that the purchaser wishes to use its right of termination. – the supplier has financial problems, e.g. insolvency or ceasing to carry out its business; – the purchaser may want to terminate at its convenience. However, because the supplier may have spent a lot of money up front in setting up the contract, this type of termination may be linked to a penalty fee; – there is a change in control of the supplier; – the supplier loses any regulatory licences, in particular its telecommunications licence; – Force Majeure: if the supplier is unable to perform the services as a result of circumstances beyond its reasonable control (which need to be carefully constrained), the purchaser may wish to be able to terminate the contract after a specified length of time. Termination of the contract is the ultimate remedy for the purchaser. As both parties will have invested management time and money in setting up the contract, it may not be the most attractive to either party. The supplier will lose its revenue stream and the purchaser will be at risk of new disruption in the process of changing suppliers. In the event of a termination, it is sensible to set out in the contract, in as much detail as possible, any hand-over arrangements.
Financial Remedies In practice, it may be difficult to provide adequate compensation for the purchaser’s loss. However, telecommunications service contracts often set out financial remedies to apply in
the event of breaches of the service level targets as follows: * Rebates/Service Credits The main advantages of rebates are that they give the purchaser a weapon to use against the supplier for poor performance or inadequate service and they provide an incentive to perform on the part of the supplier. * Liquidated Damages Fixed financial remedies may be more appropriate if the purchaser suffers serious loss owing to the supplier’s failures. Instead of terminating the contract for a material breach, it may be possible to estimate the loss likely to be suffered in a given situation and, if so, liquidated damages may be incorporated into the contract. Liquidated damages can save time and money and can provide realistic compensation for the purchaser. However, the disadvantages of liquidated damages are that if the liquidated damages are set too high, there is a danger that they will be regarded as a penalty and thus be unenforceable. Further, the supplier will normally expect the liquidated damages to be the purchaser’s only remedy.
LIMITATIONS OF LIABILITY AND INDEMNITIES The supplier will often attempt to limit its liability. It will not wish to accept liability for certain categories of losses (such as loss of profits or revenues) and it will also normally insist upon a cap on its aggregate liability whether on an annual basis or for the full term of the contract. However, the purchaser may reasonably insist that the supplier indemnifies it against all losses, liabilities, costs and expenses arising from or incurred in relation to death or injury and damage to property which are attributable to the acts or omissions of the supplier or of any of its personnel. The purchaser should ask the supplier to maintain appropriate insurance to cover such risks and the purchaser may wish to be noted on the relevant policy of insurance and obtain evidence of payment of the premium by the supplier.
Changes Given that the telecommunications industry is rapidly changing, it is highly likely that the purchaser’s telecommunications needs will change during the course of a long-term contract. Therefore, the contract should incorporate some sort of change control procedure. • Change Control Procedures Many long-term service contracts include formal change control procedures setting out the method of making significant changes to the contract.The change control procedures often set out time frames and procedures to agree such changes but do not always compel either party to accept the changes proposed. If the parties cannot agree, the matter may be referred to an independent expert, in which case there should be a fixed procedure for the appointment of the expert, who pays the costs of the expert and the basis on which the expert will be expected to make a decision.The expert’s decision will normally be final and binding on the parties. Price Changes In order to ensure the purchaser is getting the most com-
45
Telecoms service contracts
petitive services from the supplier for the entire life of the contract, the parties may agree to review prices at certain times having regard to the following: – indexation: this gives the supplier a right to increase prices, for example, by reference to RPI; or – benchmarking, where the supplier’s charges are compared to other suppliers charges who supply the same or similar services. If, as a result of the benchmarking exercise, it can be shown that the supplier’s charges are higher than other specified suppliers, there should be a provision whereby the supplier’s charges are reduced accordingly.The issue of who pays for such benchmarking exercise should be addressed in the contract.
What to do when things go wrong It is vital to set out procedures for settling any disputes. In the first instance, the problems or disputes should be dealt with by the project management team. If the problem cannot be resolved at that level, then it may be escalated to board level or to the chief executive officers of each party. The parties may also consider the appointment of experts or arbitrators to resolve the problems and only if things cannot be resolved amicably should the parties consider litigation.
Assignability It is unlikely that the purchaser will want the supplier to assign or transfer its rights or obligations to an unknown third party under the services contract without its consent although both parties may want to be entitled to assign its
rights at least within its group of companies without necessarily obtaining the consent of the other party.
Confidentiality If the supplier has access to the purchaser’s confidential records relating in particular to its business, customers and know-how, then there must be an undertaking on the part of the supplier that it will keep all such information confidential. It should also procure that any sub-contractors also comply with that undertaking.
CONCLUSION Many of the issues highlighted are far from unique, but telecommunications services contracts can present particular problems. These can be overcome by the use and development of industry-specific and tendered solutions. Clearly, the purchaser wants to be in the most advantageous position at the outset of the contract to avoid problems, but for a long term and beneficial relationship for both parties, the supplier’s ability to deliver the relevant services must be recognized. Mark Moncreiffe, Solicitor Charles Russell, Solicitors 8-10 New Fetter Lane, London EC4A 1RS Tel: + 44 171 203 5000 Fax: +44 171 203 0200 Web:
Book Review Software Licensing Software Licensing, 2nd Edition, by David Bainbridge, 1999, soft-cover, Professional Publishing, 255 pp., £38.00, ISBN 1 85811 191 9 David Bainbridge, Report Correspondent, is a prolific writer in the field of intellectual property law. His latest edition of Software Licensing is published at a time when much is happening in the field. As he rightly points out in his preface: “the scope, extent and power of computer software continues to advance at breathtaking pace. The term ‘computer software’ now includes such a wide and diverse range of works that one could almost claim that ‘everything is software now’.” Two forms of licence are considered in this book. The first deals with bespoke software, i.e. software that is specially written or modified for a client (usually on the basis of a detailed specification); whereas the second is for licences used with off-the-shelf software — i.e. ready-made software used for a vast variety of purposes. There are 10 chapters altogether which begin with an introduction to the nature of the topic. Subsequently, intellectual property rights are examined with particular emphasis on the application of those rights to software. Next, the legal nature of software is described including consideration of the potential liabilities resulting from defective software. The latter chapters of the book deal in more detail with software licences in their two main forms. There are also chapters on some aspects of software procurement, negotiation and facilities management. A glossary and some sample licence agreements are also provided in the appendices. The book is intended to state the law as of 1 October 1998. Available from CLT Professional Publishing, 31/33 Stonehills House, Welwyn Garden City, Herts, AL8 6PU, UK; Tel: +44 1707 334823 or Fax: +44 1707 335022.
46
TELECOMS SERVICE CONTRACTS TELECOMMUNICATIONS SERVICE CONTRACTS — THE LEGAL IMPLICATIONS Mark Moncreiffe
This paper examines the potential difficulties arising when contracting for the supply of telecommunications services. It also provides guidance as to how to tackle such problems when they arise.
INTRODUCTION The supply of telecommunication services raises a number of legal issues to be addressed by the purchaser.The first step is to decide on the structure of the contract under which the services are to be supplied.The most common options are as follows: • if the purchaser has the relevant expertise, it can purchase and manage its own telecommunication systems in-house; • the purchaser may wish to continue its relationship with its existing telecommunications operator in which case a hardware purchase agreement may be required as well as a services agreement; • the purchaser may invoke a tendering procedure to select its supplier of telecommunications services.The purchaser should then select from the tendering process a first and second choice supplier and enter into negotiations; • the telecommunications function of the business may be outsourced to a third party supplier. Outsourcing normally involves the transfer of an in-house department (with its assets, contracts and employees/staff) from the purchaser to the supplier under a transfer agreement. The supplier then provides the same services back to the purchaser by way of a services agreement. I shall focus on the potential problems relating to the services contract in respect of the supply of telecommunications services and how to avoid them.These areas will apply equally in some cases to the purchase of equipment with a maintenance/support agreement.
Pre-Contract Steps Certain practical steps should be taken before the contract is drafted so as to minimize the risk of poor performance by the supplier.These include the following: * selecting the supplier according to specified criteria; * negotiation of key commercial requirements; * if there is a transfer arrangement, the purchaser should respond to the supplier’s legal, financial and commercial due diligence enquiries; * both parties should consider the appointment of a project management team to negotiate the commercial aspects and deal with the ensuing day-to-day management of the contract.
SUPPLY OF EQUIPMENT AND SERVICES — AN OVERVIEW Equipment It can be relatively straightforward to determine whether equipment has been correctly supplied.Telecommunications equipment delivered to the purchaser can be physically inspected or tested to ensure that the equipment conforms to a particular specification. Key areas to focus on in respect of the supply of equipment are as follows: * Description: Define the hardware/equipment in as much detail as possible. * Delivery: Fix a delivery date and set out in the contract the remedies available to the purchaser if delivery is delayed or cancelled. * Installation : A clear acceptance procedure may be required to establish whether the hardware/equipment conforms to its specification. If it does not, the equipment may be rejected, or accepted subject to an abatement of fees or further remedial action being undertaken. * Warranties:The purchaser can reasonably expect the supplier to warrant that the equipment will: – be of satisfactory quality and fit for its purpose; – conform to its specification; – be free from defects for a given period of time; – be free from any encumbrance; – not infringe any third party intellectual property rights; – be supplied with adequate documentation/ information for the purchaser to make full use of it. * Title and Risk/Insurance: It must be clear when title and risk in the equipment pass to the purchaser for the purposes of insurance.
Services With regard to the supply of services, it is more difficult to measure whether the supplier is performing them adequately unless the contract is drafted very carefully. The purchaser’s requirements must be set out accurately within the contract so that if the purchaser is dissatisfied with the services it can
Computer Law & Security Report Vol. 16 no. 1 2000 ISSN 0267 3649/00/$20.00 © 2000 Elsevier Science Ltd. All rights reserved
43
Telecoms service contracts
enforce its rights against the supplier. The requirements should be set out in a detailed services schedule coupled with a service level agreement setting out key performance indicators and targets.
Maintenance/Support A maintenance/support agreement is essentially a services contract and therefore the same issues will apply. However, there are certain specific questions to be considered: * is the maintenance to be provided preventative or corrective? * are response times and out-of-hours support adequate for the purchaser’s needs? * will the supplier provide upgrades, new releases and modifications as part of the services? * will Year 2000 errors be covered?
General The purchaser should also be aware that: * its requirements may change during the course of the contract owing to changes in its business; * the nature of the telecommunications industry is constantly changing: there can be many technical, commercial and regulatory changes and upgrades even within a short time frame; and * costs may decrease as technology becomes more advanced. Therefore, the purchaser should try to limit any potential increase in the supplier’s charges and, if appropriate, certain cost-based reductions should be factored into the contract.
THE SERVICES CONTRACT — AN OVERVIEW Once the purchaser has selected the supplier and decided how to structure the transaction, the parties‘ ongoing relationship will be governed by the services contract which should at least cover the following: * each party’s rights and obligations to the other and a clear statement of the purchaser’s requirements; * appropriate remedies for any failure to meet those obligations; * development of the services as and when required and provisions to deal with any changes; * measurement of the supplier’s performance, a right of audit for the purchaser and an escalation procedure to remedy serious problems. The aim of the services contract is to balance the conflicting needs and requirements of both parties and to ensure their relationship runs smoothly.
IMPORTANT CLAUSES IN THE SERVICES CONTRACT Term There are different, sometimes conflicting, considerations in settling on the length of the services contract. If the services
44
contract is part of an outsourcing arrangement and the supplier has purchased the assets, contracts and personnel of the purchaser at the start of the relationship, it will normally be in the best interests of both parties to have a medium to long term contract so that the supplier can recover its initial costs over time rather than imposing high initial service charges on the purchaser. However, the purchaser may want some type of probationary period to satisfy itself that the supplier is able to deliver all the required services or at least have a fixed initial period so that if the purchaser is not satisfied with the supplier it can switch to another supplier without being heavily penalized.
Payment Terms Apart from the actual costs, which should be clearly set out (possibly in a schedule), the main concerns will be: * when payment is due; * how payment is made, and * what happens if the purchaser defaults or if payment is delayed, e.g. should there be interest on late payments?
The Services Description A full and accurate description of the services to be provided by the supplier should be set out. The purchaser will know what services it requires and the supplier will know what it can reasonably deliver.This will require commercial negotiation between the parties.
Warranties As well as specifying the exact services to be performed there may also be certain general warranties relating to the standard of the services.The purchaser can reasonably expect the supplier to warrant and undertake that it will: * perform the services with reasonable care and skill; * provide suitable, qualified and experienced staff to carry out the services.The supplier should procure that its personnel will comply with any relevant management procedures or confidentiality undertakings that the purchaser may reasonably require; * provide the services in a timely and efficient manner, and * comply with good practices and standards within the telecommunications industry. These general warranties may be difficult to measure but it gives the purchaser some leverage in the future and a degree of protection in the event that the specific service requirements are lacking.
Service Level Agreements The Service Level Agreement sets out the key performance indicators and targets linked with the service descriptions. It is often difficult at the outset of a contract to decide how to measure and assess the performance of a particular service. Therefore, the purchaser needs to have in place specific procedures for monitoring and auditing the supplier’s perfor-
Telecoms service contracts
mance throughout the term of the contract. These may include: * regular review meetings; * detailed reports, and * a right of audit for the purchaser to review the supplier’s data and systems.
Remedies Inadequate telecommunications network services can have a severe effect on a company’s business. Therefore, remedies need to be appropriately crafted and you should consider the following:
Termination Not renewing a contract at the expiry of a fixed term is one option. Another is to terminate early as a result of a serious failure to perform.The purchaser should be entitled to terminate the contract in the following situations: – a material breach of contract. There may be a provision which entitles the purchaser to terminate the contract upon a material breach of contract by the supplier provided that it has given the supplier a certain period of time (such as 30 days) to remedy the breach (if such breach is capable of remedy); – persistent or repeated breaches of contract.There may be a series of minor issues which may not, viewed separately, constitute a material breach of the contract, but which may be so detrimental to the relationship between the parties, that the purchaser wishes to use its right of termination. – the supplier has financial problems, e.g. insolvency or ceasing to carry out its business; – the purchaser may want to terminate at its convenience. However, because the supplier may have spent a lot of money up front in setting up the contract, this type of termination may be linked to a penalty fee; – there is a change in control of the supplier; – the supplier loses any regulatory licences, in particular its telecommunications licence; – Force Majeure: if the supplier is unable to perform the services as a result of circumstances beyond its reasonable control (which need to be carefully constrained), the purchaser may wish to be able to terminate the contract after a specified length of time. Termination of the contract is the ultimate remedy for the purchaser. As both parties will have invested management time and money in setting up the contract, it may not be the most attractive to either party. The supplier will lose its revenue stream and the purchaser will be at risk of new disruption in the process of changing suppliers. In the event of a termination, it is sensible to set out in the contract, in as much detail as possible, any hand-over arrangements.
Financial Remedies In practice, it may be difficult to provide adequate compensation for the purchaser’s loss. However, telecommunications service contracts often set out financial remedies to apply in
the event of breaches of the service level targets as follows: * Rebates/Service Credits The main advantages of rebates are that they give the purchaser a weapon to use against the supplier for poor performance or inadequate service and they provide an incentive to perform on the part of the supplier. * Liquidated Damages Fixed financial remedies may be more appropriate if the purchaser suffers serious loss owing to the supplier’s failures. Instead of terminating the contract for a material breach, it may be possible to estimate the loss likely to be suffered in a given situation and, if so, liquidated damages may be incorporated into the contract. Liquidated damages can save time and money and can provide realistic compensation for the purchaser. However, the disadvantages of liquidated damages are that if the liquidated damages are set too high, there is a danger that they will be regarded as a penalty and thus be unenforceable. Further, the supplier will normally expect the liquidated damages to be the purchaser’s only remedy.
LIMITATIONS OF LIABILITY AND INDEMNITIES The supplier will often attempt to limit its liability. It will not wish to accept liability for certain categories of losses (such as loss of profits or revenues) and it will also normally insist upon a cap on its aggregate liability whether on an annual basis or for the full term of the contract. However, the purchaser may reasonably insist that the supplier indemnifies it against all losses, liabilities, costs and expenses arising from or incurred in relation to death or injury and damage to property which are attributable to the acts or omissions of the supplier or of any of its personnel. The purchaser should ask the supplier to maintain appropriate insurance to cover such risks and the purchaser may wish to be noted on the relevant policy of insurance and obtain evidence of payment of the premium by the supplier.
Changes Given that the telecommunications industry is rapidly changing, it is highly likely that the purchaser’s telecommunications needs will change during the course of a long-term contract. Therefore, the contract should incorporate some sort of change control procedure. • Change Control Procedures Many long-term service contracts include formal change control procedures setting out the method of making significant changes to the contract.The change control procedures often set out time frames and procedures to agree such changes but do not always compel either party to accept the changes proposed. If the parties cannot agree, the matter may be referred to an independent expert, in which case there should be a fixed procedure for the appointment of the expert, who pays the costs of the expert and the basis on which the expert will be expected to make a decision.The expert’s decision will normally be final and binding on the parties. Price Changes In order to ensure the purchaser is getting the most com-
45
Telecoms service contracts
petitive services from the supplier for the entire life of the contract, the parties may agree to review prices at certain times having regard to the following: – indexation: this gives the supplier a right to increase prices, for example, by reference to RPI; or – benchmarking, where the supplier’s charges are compared to other suppliers charges who supply the same or similar services. If, as a result of the benchmarking exercise, it can be shown that the supplier’s charges are higher than other specified suppliers, there should be a provision whereby the supplier’s charges are reduced accordingly.The issue of who pays for such benchmarking exercise should be addressed in the contract.
What to do when things go wrong It is vital to set out procedures for settling any disputes. In the first instance, the problems or disputes should be dealt with by the project management team. If the problem cannot be resolved at that level, then it may be escalated to board level or to the chief executive officers of each party. The parties may also consider the appointment of experts or arbitrators to resolve the problems and only if things cannot be resolved amicably should the parties consider litigation.
Assignability It is unlikely that the purchaser will want the supplier to assign or transfer its rights or obligations to an unknown third party under the services contract without its consent although both parties may want to be entitled to assign its
rights at least within its group of companies without necessarily obtaining the consent of the other party.
Confidentiality If the supplier has access to the purchaser’s confidential records relating in particular to its business, customers and know-how, then there must be an undertaking on the part of the supplier that it will keep all such information confidential. It should also procure that any sub-contractors also comply with that undertaking.
CONCLUSION Many of the issues highlighted are far from unique, but telecommunications services contracts can present particular problems. These can be overcome by the use and development of industry-specific and tendered solutions. Clearly, the purchaser wants to be in the most advantageous position at the outset of the contract to avoid problems, but for a long term and beneficial relationship for both parties, the supplier’s ability to deliver the relevant services must be recognized. Mark Moncreiffe, Solicitor Charles Russell, Solicitors 8-10 New Fetter Lane, London EC4A 1RS Tel: + 44 171 203 5000 Fax: +44 171 203 0200 Web:
Book Review Software Licensing Software Licensing, 2nd Edition, by David Bainbridge, 1999, soft-cover, Professional Publishing, 255 pp., £38.00, ISBN 1 85811 191 9 David Bainbridge, Report Correspondent, is a prolific writer in the field of intellectual property law. His latest edition of Software Licensing is published at a time when much is happening in the field. As he rightly points out in his preface: “the scope, extent and power of computer software continues to advance at breathtaking pace. The term ‘computer software’ now includes such a wide and diverse range of works that one could almost claim that ‘everything is software now’.” Two forms of licence are considered in this book. The first deals with bespoke software, i.e. software that is specially written or modified for a client (usually on the basis of a detailed specification); whereas the second is for licences used with off-the-shelf software — i.e. ready-made software used for a vast variety of purposes. There are 10 chapters altogether which begin with an introduction to the nature of the topic. Subsequently, intellectual property rights are examined with particular emphasis on the application of those rights to software. Next, the legal nature of software is described including consideration of the potential liabilities resulting from defective software. The latter chapters of the book deal in more detail with software licences in their two main forms. There are also chapters on some aspects of software procurement, negotiation and facilities management. A glossary and some sample licence agreements are also provided in the appendices. The book is intended to state the law as of 1 October 1998. Available from CLT Professional Publishing, 31/33 Stonehills House, Welwyn Garden City, Herts, AL8 6PU, UK; Tel: +44 1707 334823 or Fax: +44 1707 335022.
46