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Risk analysis of tenders, bids and contracts related to information technology projects

Besides HR consulting activity, our company offers risk analyses of information technology projects.

Our experience shows that in the case of more complex IT investments, the complicated nature of contracts often makes it quite difficult to define the exact subject of such contracts. Likewise, the precise definition of supplier responsibility and customer requirements related to the delivery of a complex IT solution also requires a great attention. Perhaps one of the reasons for this is that information technology has a less unified system of definitions than some other industries because, as a result of constant development, newer and newer products and technologies make older definitions quite soon obsolete. Another possible reason is that a wide variety of solutions and methodological approach offered by IT companies to the same given problem makes it difficult for customers to compare such competing offers.

Moreover, information technology projects have a special liability system. A malfunctioning IT system may damage customer data, while data saving and creating backup systems is mostly the customers' responsibility. Nevertheless, IT companies always stress that using software is "hazardous work" and that there is no "software without defect", since due to the incredibly rapid development triggered by customer demand software products do not undergo such long and elaborate testing as medical products, for example. Therefore, their "live" testing begins only after they have been sold and their further development is based on error reports provided by users. Besides that, information systems are often customized to fit to customers' internal procedures. This work requires the active participation of the customers' experts in every stage of the project and makes both the supplier and the buyer responsible for the progress of the project and the achievement of the targeted results. In a project environment where work is divided this way, the enforcement of contractual obligations (contractual penalties, for example) or damages may become very difficult, due to the shared responsibilities and the problems of proving the final reasons for such delays or defects.

Who can be held responsible for the loss of data and for the "IT damages" and how? There is no unequivocal answer to this question because each case needs to be assessed independently.

These problems can be avoided if the contracting parties consciously prepare to address them during the preparation of tenders, bids, contracts and project related documents, that is, they precisely define the object of the contract, the division of work and responsibility, and the procedures to settle disputes.

Some special characteristics of information technology projects that, if "neglected," may increase the risks involved in the projects:

  • Rapidly developing technology, changing functions and definitions
  • Only a small part of IT terminology has a generally accepted Hungarian translation, therefore, it is difficult to use precise definitions in Hungarian contracts
  • Clear definition of the subject of the contract and the circumstances under which the project can be implemented. If the subject of the contract is not clear enough, yet customer requirements must be met, the supplier may incur significant additional costs
  • Information technology systems on offer are often different from customers' requirements in functional terms or issues of liability. In these cases, the parties must be aware of the effects the changing of the original tender might have on the rest of the tender.
  • Standard software and software requiring development often appear jointly in projects, yet they should be handled differently in contracts.
  • Strict data protection and data management regulations.
  • Access to sensitive data calls for strong protection of classified information
  • Special proprietary rights and copyrights.
  • Different liability nature for fixed price projects and "time and material" projects
  • In the case of software, it is difficult to prove cases related to warranty obligations and liability.
  • In case of standard software, it is hard to define the content of obligations to comply with legal and regulatory requirements.
  • It is of key importance for both parties to clearly define the conditions and procedures of delivery and the types of errors to be included in the warranty, since most of the disputed issues, which often lead to lawsuits, arise in connection with delivery.
  • The contractual conditions set by the tender, especially in the case of public procurements, are often in contrast with the general conditions of international suppliers of standard products and software. The two set of conditions need to be harmonized.
  • Although several uniform practices applied in international information technology contracts (such as liability limit, specific warranty conditions and special conditions for liquidated damages) are not comprehensively regulated by the Civil Code they must be defined in detail in the contract.
  • The definition of certain performance related features (availability, response time, deadline for error correction, etc.) requires a particularly complex set of conditions.

To avoid disagreement, a clear hierarchy should be defined between contract documents and project documents.

We help to identify and reduce these risks as well as others not listed above.

 

NAO

Map

Company seat :
H-1117 Budapest
Galambóc utca 21.

Office:
H-1124 Budapest
Csörsz utca 41.


Managing Director :
Tamás Mezey

Phone:
(+36 1) 488 5409

Fax:
(+36 1) 488 5481

Company reg. no :
01-09-86-0319

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