Customers in long-term technology projects can find that while they have been working towards their chosen solution a more advanced, cheaper, or simply more desirable technology has become available. The benefits of switching solutions may be very significant, but exiting an existing agreement can be costly and complex, both legally and commercially. Since delays in technology projects are frequent and technological advancement shows no signs of slowing down, we look at what customers and suppliers can do to mitigate the risks posed by technological advancement.
This article is the second in a series looking at what customers and suppliers can do to mitigate the risks posed by technological advancement. This article looks at steps that can be taken during the life of the project, and steps that can be taken when it becomes apparent that a change of technology and/or supplier will be sought and an exit or re-tender is likely. The first in the series can be found here and it considers the steps which can be taken at the contracting stage.
During the life of the project
Governance: Keeping the project on track and minimising delay will be key to minimising the risk of a new technology becoming available during the life span of the project, or of the project being implemented so late that the newly delivered technology is already obsolete. Of course, if the contract is for a bespoke solution involving many different contractors and innovative solutions, the life cycle of the project may be lengthy in any event; but certain steps can help to prevent it becoming more so.
In this context, good project governance is critically important. All too often parties carefully draft and agree contractual provisions designed to ensure smooth management and running of the project, but then find that when the focus switches to delivery, the contract is ignored. Where appropriate contractual mechanisms are available they should be used to keep the project on track so far as possible. We discuss this in more detail in the first article in this series which can be accessed here. The parties should comply with governance provisions, consider the use of (for example) relief notices and serve them where needed, and ensure that negotiated changes are properly recorded in Change Notes (or other contractually required documentation).
Disputes: The parties should of course operate any dispute escalation or other interim dispute resolution process to try to resolve disputes as quickly as practicable, but should try to keep progressing the work in the meantime. Any supplier or customer finding themselves in the midst of a difficult or faltering project should seek advice on how to preserve their rights, to minimise the risk that keeping the project on track might involve sacrificing their longer-term interests. A third article in this series will look at this more closely.
Record Keeping: All parties should keep careful records of project progress and difficulties, particularly in relation to the causes of delays. These are useful both in relation to ensuring that any project re-set that is needed happens sooner rather than later and in bringing, defending or compromising any claims should the project end.
Exit and re-tender
Risk of Repudiation: From a customer’s perspective, it is crucial to seek advice on the legal position before trying to force through a project re-set or terminating the existing relationship. The project contract may contain exit rights that the customer can operate in order to secure its release; however, unless the supplier has committed a clear breach of contract these may be difficult to rely upon, and a right to terminate the project for the customer’s convenience generally requires the supplier to be paid a large sum to compensate for its lost income over the remainder of the project. The right to terminate the contract at common law similarly requires a serious breach, known as a repudiatory breach, by the supplier. Simply walking away from the project without a legally sound basis itself constitutes a repudiatory breach, and exposes the customer to a potentially large damages claim by the supplier. Similarly, re-procuring the technical solution as a replacement is likely also to be repudiatory, since it demonstrates an intention by the customer to no longer be bound by its original contract. From the supplier side, it is also critical to know your rights both in order to challenge any unlawful termination by the customer and in order to be able to leverage them in any re-set or exit negotiation.
Sub-Contractors: Both the supplier and customer should be conscious of the effect of exit on sub-contractors to the project. A sub-contract which contains different termination rights to the head contract – or, critically, does not contain an automatic right of termination where the head contract is terminated – may leave the supplier in the unenviable position of negotiating on two separate fronts or facing two separate disputes. It may be more difficult for the customer to secure the exit it desires in circumstances where the supplier is also trying to ensure that it is not left out of pocket by reason of obligations or payments owed to its sub-contractor. A requirement that any sub-contract contains certain key clauses – such as clauses in relation to exit – may mitigate the risk of such situations arising; but failing that, the supplier in particular will need clear advice on its exposure to claims from its sub-contractor in order to inform the position it takes with its customer and to ensure that it does not inadvertently terminate its sub-contract unlawfully.
Publicly Procured Projects: Particular difficulties can also arise in relation to IT project contracts procured under public procurement regulations, which constrain significant contractual variations. The detail of this issue is outside the scope of this article but needless to say, specialist public procurement advice will need to be sought by any customer (or, indeed, affected supplier) finding itself in this situation.