ICT TRAINING PROGRAMMEICT CONTRACT SCHEDULES

Ask not what your lawyer can do for you, but rather what you can do for your lawyer! © Mark Eustace

Mark Vipan and JP Buckley

6 September 2011

2

Why everything matters

Aoccdrnig to rscheearch at Cmabrigde Uinervtisy, it deosn't mttaer in waht oredr the ltteers in a word are, the olny iprmoatnt tihng is that the frist and lsat ltteer be at the rghit pclae. The rset can be a toatl mses and you can still raed it wouthit a porbelm. This is bcuseae the huamn mnid deos not raed ervey lteter by istelf, but the word as a wlohe.

3

What we need to avoid

Interpretation issues

leading to disputes

and possible legal action

or costly negotiation

and, potentially, the loss of our desired outcome

4

How to deliver contract requirements

Framework Procurements

BespokeProcurements

guardian.co.uk

5

Framework procurements

When setting up, consider:

who the customers will be

what the range of services is

Procuring authority then enters into framework agreements with the Companies

The entitled customers can take supplies as and when they need them, if at all

Duration of frameworks limited to 4 years

Technology Partner - single supplier framework

Catalist / Buying Solutions - multi-supplier frameworks

PROCURING AUTHORITY

A B C D E F

COMPANY (3)COMPANY (1) COMPANY (2)

FrameworkAgreement

FrameworkAgreement

CallOffs

CallOffs

CallOffs

Customers

6

Bespoke procurements

Consider at the beginning:

the scope of services

any additional service users

Contract will be tailored to the exact requirements of the parties

Can only be limited "additional" services capable of being ordered, or this then becomes a framework with the constraints imposed

AUTHORITY

COMPANY

7

Transition Visualisation

Down select

x weeks

ITPD/ITT/

ITN

10 days

Evaluation

ITSFT/ITT

RESPONSE

Standstill period

Contract Award

decision

Clarifications

37 days

OJEU

PQQ

Contract Award

Procurement ExerciseDD Exit Plan

Business case & prep Transition Transform

-ation

6 - 9 months4 - 9 months 6 months = 24 months

Legacy Contract Replacement Contract

Service cut over / legacy contract expiry

8

Second Generation Outsourcing

time for planning and preparation of business case

preparation for bidder due diligence is there an exit plan?

what is the legacy supplier committed to do?

procurement exercise - choice of the right procedure what is a "particularly complex contract"?

transition and/or transformation

contract extension Pressetext

effect of Remedies Directive

conduct of the transition verification & testing

9

Implementation Plan

Clause 3 and Schedule 6.1

Setting out Nature, Purpose, Format and Production of Plan

Suggested Format

Link back to Contractor Solution, Authority Responsibilities, Testing, Charges

Milestone Deliverables (bulleted list showing all Deliverables (and associated tasks) required for each Milestone)

Duration (working days)

Milestone Date

Authority Responsibilities (if applicable)

Link to ATP/CPP

DC1 operational datacentre

20 06/09/11 facilitating access

n/a

ATP1 achievement of all preceding milestones

0 06/10/11 ATP

CPP1 achievement of CPP criteria

90 06/01/12 CPP

10

Implementation Plan

From Outline Plan to Detailed Plan

To be produced within timescale in Outline Plan

To contain the completion of each design document the completion of the build phase the completion of testing of the Services in accordance with schedule

6.2 (Testing Procedures) training and roll-out activities

To set out detail for at least next 12 months and to be updated weekly once approved

Interaction with Change Control and Provisions on Delay

Impact of due diligence

11

SOR - Statement of Requirements

Clarity is essential

The SOR should include clear, objective and measureable requirements, avoiding ambiguous or open-ended drafting

Common mistakes include terms such as "the Authority may carry out this function", "in the future" or "subject to change"

A Bad Example:

"The Contractor should provide to the test facilitator the requested information relating to test plans, test documents, and common re-usable tools that the Authority may wish to re-use in the future."

12

Testing

What testing is needed?

When will testing take place?

Which tests are needed for particular milestones?

What is the process for approving milestones?

What are the Test Success Criteria?

What is the remediation process for missed / failed milestones?

fugenxcdc.com

13

Testing

Testing - Clause 4 and Schedule 6.2

Purpose = ensure that the Services or any Deliverables are compliant with the Test Success Criteria set out in schedule 6.2 (Testing Procedures)

Once a relevant part of the Services, or a Deliverable, is completed the Contractor shall submit this for Testing and the Testing Procedures are to be adhered to

Schedule sets out the roles and responsibilities

14

Testing

Contractor

Ensures that any items submitted for Testing are quality controlled per the Test Strategy

Manages progress of the Testing in accordance with:

Test Strategy Test Plan Test Specification

Provides the Authority with a draft Test Report in good time before the date on which any Tests are to end

Submits a final Test Report following completion of the Testing

15

Testing

Test Issue

Where an issue is identified during Testing, including where any relevant Test Success Criteria are not met

Test Issue Levels are allocated by the Contractor and are approved by the Authority

Test Issue Level = the severity of the Test Issue (see over)

16

Testing

Test Issue Level

To be set for each project and to be contained in para 9.1 of Schedule 6.2

Example

Test Issue Severity Level 1 prevents a critical element of the relevant Services and/or the relevant Deliverables from functioning or being performed;

Test Issue Severity Level 2 all elements of the relevant Services and the relevant Deliverables can still function with a workaround, however functionality or performance is severely or materially impacted;

Test Issue Severity Level 3 all elements of the relevant Services and the relevant Deliverables can still function, however there is minor functionality/performance impact; and

Test Issue Severity Level 4 all elements of the relevant Services and the relevant Deliverables can still function, however there are minor cosmetic defects with no functional impact and with no impact on end users.

17

Testing

Test Success Criteria are met: Authority issues Test Certificate or a Milestone Achievement Certificate

where appropriate

Each party bears its own costs in relation to the Testing

Test Success Criteria are not met (in whole or in part): Default position - Test Certificate need not be granted. Contractor to re-

test if time. If not, Delay provisions (Clauses 5-8) apply

If Test Certificate is granted, then Correction Plan should be annexed

If a Milestone Achievement Certificate is granted, then Milestone Payment is to be made

Example of alternative drafting: Where no Test Issue Levels 1 or 2 are outstanding, and no more than the

[agreed number] of Test Issue Level 3 are outstanding, the Authority will issue a Conditional Test Certificate/Conditional Milestone Achievement Certificate but may withhold payment of any Milestone Payment pending resolution of the issue.

18

Testing - Schematic

Completion of Services or a Deliverable

Tests

Test Success Criteria are not met. The Delay provisions in clauses 5 – 8 will apply as appropriate.

Test Success Criteria are met / Deliverable meets spec

Authority issues a Test Certificate or a

Milestone Achievement

Certificate

Failure to Achieve Test

Success Criteria

Contractor is responsible

for Authority’s costs (if

Milestone missed)

Re-Testing required

Caused by Contractor

Caused by Authority

Contractor due compensation. Contractor provides Authority with information required to

assess validity of claim.

Each Party bears own costs.

Agreed. Authority pays.

Not agreed = Dispute Resolution

Process.

COSTS:

19

Liability limits

Must be precise and accurate

A misplaced comma could cost millions:

Example 1:

The supplier shall not in any event be liable for any indirect, special or consequential loss, howsoever arising (including but not limited to loss of anticipated profits)

Example 2:

The supplier shall not in any event be liable for any loss of anticipated profit or for any indirect, special or consequential loss, howsoever arising

http://legalbizzle.wordpress.com/2011/05/30/revolting-pedants/

How can you help? Understand your organisation's appetite for risk and typical liability levels.

Consider carefully what the different caps cover.

Consider what damage a supplier's breach could cause to property, data, other contracts.

20

Service levels

Consider what will be measured. Is it practicable?

How will we reach an appropriate percentage?

What exclusions are there?

How will compliance be monitored and managed during the life of the contract?

What happens if service levels are not met?

Persistent/repeat failures?

Termination right?

Escalating Service Credits?

How can I help?

understanding the impact of breach

modelling how service credits are appliedschuelerautomotive.com

21

Standards

Basic standards already included

What else do we need to include?

The sooner you let us know, the better

That way bidders can be informed and understand their risk profile and the compliance regimes they need to have in place

22

Charges

What payment profile is likely to be acceptable?

When will charges commence?

How will they accrue, even if not paid?

What if implementation is late?

Finance costs?

Indexation?

date of application?

in respect of which periods?

which index is used?

loanmortgagecredit.com

23

Open Book Accounting

Before contract awarded, Contractor submits financial model

budgeted items for initial set up

ongoing service delivery costs

assumed profitability

Contractor provides annual accounts in relation to services

Accounts show contractor's actual costs and profits

May lead to reset of charges if actuals are less than budget

Supports gain sharing

Forms the basis for estimating change costs under Change Control Procedure

Ensures ability to monitor financial aspects of the project

24

Benchmarking

What is Benchmarking?

Service performance and/or the price of services under the Agreement are compared to the market

Benchmarking can apply to Services as a whole or to individual service elements (e.g. printing, hosting)

Why is it used?

Keeps continuous competitive pressure on the Contractor to provide value for money

Where expectation that prices will drop over lifetime of contract

25

Benchmarking

Appointment of a Benchmarker

By either the Authority or the parties together

How will the Benchmarker be chosen? i.e. demonstrated expertise, methodology, data sources etc, from a list, or simply not a competitor.

Benchmarker to act as an expert not an arbiter

Who will pay the fees?

26

Benchmarking

Benchmarking considerations:

Scope i.e price, quality, service levels etc

Constraints on the Benchmarker

When will benchmarking take place over the term? - generally not in early years or for short term contract

How will the Benchmarker identify analogies for the Services? - need to identify like for like comparators. Can be difficult for "newer" deals

How will the results be implemented? - i.e. what are the "sanctions"

What happens in the event of a dispute? Right of appeal/second opinion?

27

Benchmarking

Benchmarking will operate using some of the following:

information from other service providers to the Authority

survey information

market intelligence

the Benchmarker's own data and experience

relevant published information

information from consultancies and/ or other vendors or purchasers of Comparable Services

information from 'in-house' providers to the Authority to the extent that Benchmarker considers that they are valid comparators

Improvements or price reductions must be implemented within a specified period of time

28

Benchmarking

Benchmarker to have regard to:

the contractual and business environment under which the Services are being provided [(including the scope, scale, complexity and geographical spread of the Services)]

any front-end investment and development costs of the Contractor

the Contractor's risk profile including the financial, performance or liability risks associated with the provision of the Services as a whole

the extent of the Contractor's management and contract governance responsibilities

any other factors reasonably identified by the Contractor, which, if not taken into consideration, could unfairly cause the Contractor's pricing to appear non-competitive (such as erroneous costing or over-aggressive pricing)

29

Gain Share

Applicable where operation of the Agreement results in higher gains than those predicted

Imposes limits on the return the Contractor is able to achieve

Contractor and the Authority share in

returns made over the life of the project

returns on a periodic basis over a certain threshold

returns over a rolling fixed period

Returns may be as a rebate for service charges or "free" additional services

Requires Open Book Accounting to verify the gain to be shared

30

Gain Share

Part A of Schedule 7.3 contains a templateBand Earned Gain Contractor Share Authority Share

Band 1 Less than or equal to Threshold Gain Margin

N/A N/A

Band 2 [More than the Threshold Gain Margin and less than or equal to the Threshold Gain Margin plus [ ].00%]

x% 100%-x%

Band 3 [More than the Threshold Gain Margin plus [ ].00% and less than or equal to the Threshold Gain Margin plus [ ].00%]

X% - [ ]% [ ]% +X%

Band 4 [More than the Threshold Gain Margin plus [ ].00%]

X% - [ ]% [ ]% +X%

31

Execution

Need to be accurate

All documents need to be completed correctly

Party names and signatures need to be correct (and check the contractor is the qualified bidder and the PQQ response is still current)

Glencore - Chief Executive signs contract asking him to report to a company that doesn't exist

Remember to obtain a Guarantee if the bidder pre-qualified on that basis

Obtain opinion letters regarding foreign entities, especially guarantors

How you can help

Advise of any required approvals/delegated authority.

Ensure signatories are briefed and available.

Advise of any other internal / departmental procedures

32

Contract Management

monitoring of contractual responsibilities

use of governance meetings

escalation processes

element of "bargaining" - areas of non-compliance traded for new/amended requirements (NB Pressetext)

applying contractual remedies where appropriate

dispute resolution

ICT TRAINING PROGRAMMEICT CONTRACT SCHEDULES

Ask not what your lawyer can do for you, but rather what you can do for your lawyer! © Mark Eustace

Mark Vipan and JP Buckley

6 September 2011