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IT contract partners must deal with change to prevent projects failing, says expert

Out-Law News | 05 Aug 2014 | 10:02 am | 2 min. read

The risk of breakdown in relationships between parties to an IT contract and the business and legal costs that a breakdown can cause should prompt organisations to address changes when they arise, an expert has said.

IT contracts specialist Ian Birdsey of Pinsent Masons, the law firm behind Out-Law.com, said that within months of IT contracts being signed, the commercial landscape can dramatically change. Changes in circumstances often arise and organisations that fail to recognise how this affects an IT contract risk facing an "irretrievable breakdown" with business partners. This can result in costly legal disputes and even the failure of the project, he said.

"It is not uncommon for businesses and their suppliers to encounter problems during an IT project," Birdsey said. "Pressures can arise on either side of that relationship as a result of external factors, such as changes in the market or economy, or because of the way in which projects are being delivered or managed."

"Where that pressure is left unaddressed there is potential for a complete breakdown in relationship between an IT supplier and the end-customer. This can lead to a project failing, with time and money wasted. Disputes can escalate to litigation and lead to further uncertainty, risks to reputation, a hold up on necessary business technology changes and legal costs," he said.

Birdsey was commenting after the Financial Times reported that IT outsourcing company Quindell and the RAC were in disagreement over how to take forward a joint venture arrangement they put in place earlier this year for the installation of telematics data-recording devices in vehicles. The devices record individuals' driving habits and the data produced can be used by insurers to personalise the motor insurance premiums they sell to drivers.

According to the Financial Times' report, the RAC wants to restructure the joint venture deal it signed with Quindell. Under the existing deal, the RAC is entitled to receive shares in Quindell once Quindell's share price reaches a certain level, the report said. However, Quindell's share price fell earlier this year following the publication of a critical report about it and means that shares in the company would need to more than triple in value from their current price before April 2016 for the RAC's warranty to be triggered, according to the report.

The telematics box installation project to be carried out by Quindell and the RAC's joint venture company has so far failed to start. Both businesses have already committed £15 million between them to the project and a further £70m investment is planned, the report said.

"When external factors present significant issues that impact on an IT contract, there is a risk to the project and the parties' commercial relationship," Birdsey said. "Recognising the potential for circumstances to change, and the effect that change can have on an IT project, is extremely important. It can help parties engage with one another at an early stage to address issues before relationships sour and projects fail, at which stage litigation may have become unavoidable."

"If issues that can lead to disputes are identified early enough then the parties can explore the renegotiation of an existing IT contracts. Renegotiations can offer businesses a practical solution to help get projects back on track by allowing the parties to identify the changes that have impacted on their relationship and find ways to address that change in a way that caters for both parties' business objectives," he said.