So, you are sat at your home desk (or kitchen table or ironing board!) and you need to draft a contract for a new IT project. You have your company's standard template, but what do you need to do differently given the unprecedented action from governments around the world to combat COVID-19? Here are some brief thoughts.
|Topic||What should I think about?|
|Force Majeure clause||
No doubt, your first thought will be to look at the force majeure clause and see whether it already refers to pandemics (or similar).
Force majeure clauses are clearly an important contractual provision in the current climate and will likely receive more attention in negotiations over the coming months.
We have written a detailed note looking at the issues you should be thinking about in force majeure clauses.
However, force majeure clauses, by their very nature, are generic. They are intended to apply a "broad brush" regime of relief from liability in respect of a very wide range of potential events. Accordingly, it is important to consider the potential impact of COVID-19 elsewhere in your contract.
It is also worth remembering that most force majeure clauses assume that only one party will be affected by the relevant force majeure event. By contrast, COVID-19 is almost certainly affecting both parties to at least some extent. This, again, is a good reason to look outside of the force majeure clause in the current circumstances.
|Changes in law||
We have already seen a number of governments introduce new laws (and guidance) in an attempt to confine the spread of COVID-19, and it is likely that legislative developments will continue over the coming months.
However, many simple IT templates do not include a specific change in law clause (or, where a clause is included, it will often simply transfer the increased risk and cost of changes in law onto the supplier).
Now may be a good time to think about including a more balanced and consensual approach to changes in law:
It is likely that your template will include business continuity obligations on the supplier, but these are often treated as boilerplate provisions and not discussed in any detail in negotiations.
Accordingly, when negotiating new contracts, it will be worthwhile to spend time properly exploring how each party's BCDR arrangements will work and, in particular, how they will interact with each other.
One area to focus on may be to stress test the assumptions on which the BCDR plans are designed (e.g. if supplier's BCDR plan assumes that up to x% of its workforce may be unavailable, how will the services be provided if y% of its workforce end up being unavailable?).
|Dealing with non-performance generally||
For obvious reasons, many IT contracts don't include specific procedures to deal with non-performance by the supplier until it gets serious (whether that is "material breach" allowing termination or some form of "Critical Service Failure" triggering remediation obligations).
|Governance & reporting||
Traditional governance regimes tend to be quite rigid (i.e. a series of fixed quarterly or monthly meetings between defined steering committees with specific terms of reference). It is likely that the parties will want to supplement their standard governance schedule with a more flexible regime to address the current environment. This could include:
It is also worth considering whether reporting arrangements should be tweaked, such as:
Many IT contracts will include milestone-based obligations, such as the implementation of an IT system or delivery of physical hardware. Traditional remedies for delay include liquidated damages and termination.
Bird & Bird has long had the view that these remedies are blunt tools to deal with complex contracts with many moving parts. The COVID-19 crisis underlines the need for more practical remedies that are focussed on getting the project back on track and not just on establishing a legal claim against the other party.
We would suggest:
Some of the key issues to consider here include:
Most IT contracts will address whether the supplier needs to seek the customer's consent to sub-contract (and will generally expressly state that the supplier is responsible for any acts or omissions of its sub-contractors).
However, the majority of IT contracts do not go further than this (on the basis that it is the supplier's responsibility to manage its supply chain).
In the current environment, it may make sense (for both parties) for there to be greater transparency about the supplier's sub-contractors and their performance, including:
|Security||Many IT templates will include security requirements or a security policy. These will likely have been drafted to work in the pre-COVID-19 world. As such, there may be restrictions on accessing data from home, including the use of portable storage devices, that may need to be reviewed to strike the right balance between ensuring ongoing data security and reflecting current working practices.
|Pricing & invoicing||
There may be cost increases for suppliers due to ongoing factory closures and/or higher demand for delivery and logistics services.
Under normal circumstances, the supplier often has to bear the risk of such cost increases.
In the current climate, it may be useful to at least have a discussion with the commercial stakeholders to understand whether there is an appetite for some form of pain-sharing here, at least on a temporary basis while supply chains are subjected to increased and unpredictable surges in demand.
Similarly, it may be worthwhile to review policies on payment terms. For example, if your standard payment terms are 60 days (or longer), you may want to consider whether a temporary exception could be made, at least for small suppliers.
|Audit rights||You should consider how audit rights will be exercised during any period of remote working and social distancing. Can audit data be provided electronically by the supplier instead?
Although we may have to live with the implications of COVID-19 for some time, the current crisis will end at some point. As such, you should consider which of the above modifications should cease to apply (and at what point).
It may be difficult to set an objective end date at the moment (not least because the return to "normal life" may be phased and we may see the reinstatement of lockdowns and social distancing regimes in future months or years). As such, it may make sense to call out those modifications which are specific to COVID-19 and have a governance regime for them to be periodically assessed by the parties.
Equally, even when COVID-19 does retreat, we may see that some current working practices stick around in the longer term (e.g. a greater trend towards remote working). As such, again, this would mean that it would be prudent to regularly review the modifications made to your contract for continued relevance.