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James Smart, Partner, Maddocks delivered the presentation at the 2014 Police Technology Forum. The Police Technology Forum 2014 seeks to address technology innovation, evolution and development within Australia’s law enforcement industry. In two days, a panel of experts gather to examine opportunities, initiatives and issues facing organisations both in front line policing as well as in wider law enforcement industry, including transport, border protection and surveillance. For more information about the event, please visit: http://www.informa.com.au/policetechforum
Citation preview
Practical tips on preparing effective
IT contracts for police
James Smart | Partner
13 March 2014
Introduction
Key issues for police to consider when
drafting and negotiating IT contracts
How to ensure you can deliver a
successful project: scope/time/budget
Understanding IT contracts in a
police/emergency services context
Victorian Ombudsman report (2011)
– key points
IT projects are often poorly managed and failures are
common
The public sector does not manage IT-enabled
projects effectively
Examined 10 major IT-enabled projects: each failed to
meet expectations, most failed to meet delivery
timeframes and all ran over budget
58 recommendations to improve the way IT-enabled
projects are planned and delivered
Key reasons for failure in IT projects Failing to understand the complexity and cost of a project
Poor business cases
Failing to identify and manage risk
Poor project management and governance structures
Poor procurement and evaluation processes
Poor contracts
Inadequate contract management and performance
monitoring
Staff with inadequate expertise
Promoting good performance
Link payment to performance: link payment with the
acceptance of milestones or KPIs. KPIs should be clear,
relevant, measurable and reported against
Set-off clauses: which allow payments owing to the
contractor to be set off against any amounts claimable as
a result of the contractor failing to meet its obligations
under the contract
Liquidated damages: this avoids the need to litigate and
prove loss. Entitlements to LDs will be most useful in
situations where you are able to calculate what the actual
loss will be for breach of a contractual obligation. If the
entitlement to liquidated damages is a ‘penalty’ it will be
unenforceable
Liquidated damages: tips for drafting
Include a clear method for calculating LDs
Ensure that the amount of damages is not
excessive or out of proportion to any damages
that are likely to be suffered as result of a
breach
Consider how payment will be received. A
deduction by the government body on the next
amount payable is generally the preferred
option
Andrews v ANZ
Caution when drafting
performance/abatement clauses
Need to estimate the likely loss or the
clause may be unenforceable as a
penalty
Contract governance
It is important to ensure the level of service
you will receive is satisfactory – ‘normal’
service vs services required in emergency
situations
Establish a clear governance framework, eg
a steering committee and reporting
protocols and a dispute resolution process
Ensure it is clear how rights and obligations
will be performed
Step in rights
Step in rights ensure that if the contractor's
performance becomes an issue, you can step in
and take over their role
Step in rights should be included:
– in major IT contracts
– in contracts which are crucial to the performance
of your statutory duties
Drafting step in clauses
When drafting step-in clauses, you will need
to consider:
– circumstances
– the need for level of expertise
– the costs and any necessary compensation
– step out procedure
– no liability
Indemnities Why use them?
An indemnity is a primary obligation to provide
compensation and operates like a debt
Consider and allocate risks:
– what are the key risks in the project?
– which party is best placed to manage those risks?
– what types of loss will be covered by the indemnity
and are all relevant losses covered?
– what insurance does the contractor have in place to
guard against the risks?
Indemnities Contractor indemnity: key areas eg breach/negligence
Liability caps – exclude:
– personal injury or death
– confidentiality and privacy
– third party IP rights
Circumstances in which the indemnity will not apply?
– exclusion of consequential loss
– actions by you or third parties
Indemnity by your organisation?
Insurance
Types of insurance
Evidence of insurance
Linking a liability cap to the amount
that can be recovered under insurance
Variations
It is crucial that, when a supplier does not comply with a contract, you take proactive steps to manage the problem
Variations should:
– be in writing
– be in specific terms
– identify all relevant conditions
– identify all other consequential amendments that are necessary
– obtain a benefit for your organisation where
possible
Variations
Manage variations carefully
Conduct a risk assessment for each
proposed variation
– what is the reason for the change?
– will it alter the parties’ obligations under the
contract?
– will it have any financial impact?
– will it have any impact on timing?
Variations
– will it impact on any key documents?
– do you have authority to make the change?
Follow the specific variation procedure in
the contract
Ensure you have not waived future rights
Ensure the contract is kept up to date
following each variation
Planning an escape mechanism
When parties are in dispute and termination is
being contemplated, it is important that the
contract is clear about your rights
Consider whether the following types of clauses
are sufficiently clear in your contract:
– termination for convenience
– termination for breach
– transition out clauses
Termination for convenience
Based on doctrine of executive necessity – eg change in
government or government policy
For reasons of flexibility, you should generally require a
termination for convenience clause
Your sole discretion – no fault needs to be proved
To protect both parties, the contract should usually contain a
clause requiring you to compensate the contractor for loss
caused by the early termination:
– capped amount
– reasonable losses directly resulting from the termination
– exclusions, eg consequential loss
– requirement to mitigate
Termination
Before terminating, ensure you have complied with all of
its obligations
Consider termination as a last resort
Does the contract involve a critical element of your
functions?
Consider long term relationships/intra-government
arrangements
Avoid wrongful termination as this might make you liable
for damages
Termination takes time and costs money and an
alternative supplier will still be required
Transition out
Consider what, if anything, you will require from the
contractor at the expiry or termination of the agreement
Transition arrangements should address issues such as:
– service continuity during transition to a new provider
– access to the contractor's documents, software, IP,
equipment, confidential information and data
– access to personnel
– co-operation with new contractors
– a specified timeframe for the transition
– provision of material to form part of a new RFT
Key legislative obligations
Privacy: contractors must protect personal
information. Contracts should require
compliance with the IPPs/APPs and contractors
should be directly liable for any breaches
Freedom of information: contractors should be
required to provide you with documents in
accordance with FOI legislation
Key legislative obligations
Record keeping legislation: obligations on police
to keep records – eg Public Records Act 1973
(Vic), Archives Act 1983 (Cth)
Audits: requirement for Auditors-General to
access documents of contractors in some
circumstances
Ombudsmen: power to review your actions or
decisions which may extend to actions taken
under contract
Conclusion
Plan and scope each IT project carefully
Understand the context in which the technology or software will be provided
Ensure the services or functionality are documented
Use a contract that is designed for the specific project
Ensure all key risks are identified and appropriately allocated under the contract
Conclusion
Aim is to minimise risk and deliver a
successful project
Important to ensure that the technology or
software is delivered under the contract as
required
Also important to avoid criticism of the way
the contract was managed
Practical tips on preparing effective
IT contracts for police
James Smart | Partner
Direct 61 3 9258 3632
Mobile 0419 148 796