It is pertinent to note and take into consideration the practical aspects before outsourcing IT Services and stepping into an IT Contract. Primarily, an IT Contract should unambiguously reflect the very intention of the transaction. However, certain practices should also be followed, so as to maintain the quality and efficiency of the contract.
Part III of the Series on IT Contracts discusses the best practices to be followed while drafting an IT Contract.
BEST PRACTICES TO BE FOLLOWED
1. Inclusion of the Harmful Code Clause:
In order to receive or provide quality goods/services pertaining to IT, the provisions protecting the business from Harmful Codes must be considered while entering into an IT Contract. Thus, the Clause is structured to clarify that the product/service does not contain any harmful code which might disrupt or damage the system.
‘Harmful Code’ means any computer code that tends to hamper, reprogram, corrupt, impair or damage the processing systems which, in turn, disrupts the business of the Purchaser adversely.
It includes Code that:
- Makes the system fragile to unauthorized access;
- Prevents authorized user from accessing or using the service;
- Causes disruptive activities which impede or harm the System in any manner;
- Invites virus, bugs, worms, or any drop- dead device which is dangerous to the business system;
- Anything which makes confidential information vulnerable to the outer world.
2. Inclusion of Service Availability Clause:
In order to entrust the product/service to the Purchaser’s business, the terms and conditions with regards to taking responsibility for the service availability, due response and other such requisites should be assured in an IT Contract through a Service Availability Clause. Thus, the Clause would legally impose an obligation on the Service Provider for credible response in such cases and thereafter, the beneficiary party must conform to such a Clause as well.
3. Inclusion of Service Level Credit Clauses:
In order to ensure the expected standard of service from the Service Provider, the inclusion of a Service Level Clause in the IT Contract is of prime importance. Thereby, it will enable the Purchaser to invoke contractual rights in case of compromises/reduction in the promised level of service.
Furthermore, as a consequence of constant failure by the Service Provider to maintain service level credit, a Termination Clause could be considered by the Purchaser in an IT Contract. Thus, it will provide an exit door for the Purchaser to avoid legal complications.
4. Ensuring Product Acceptance Testing Terms:
Product Testing is an essential part of contract sustainability. The Purchaser has the right to ensure the efficiency of the product/services. If the deliverables do not satisfy the minimum standard of quality or the agreed specifications, the Purchaser could terminate the contract or request for some other alternative, as decided by the parties.
5. Ensure Longer Warranty Period:
In order to set up a prolonged protection towards the concerned IT Services, a longer duration of warranty could be proposed by the Purchaser. Therefore, the crucial details regarding price negotiation for the extending period and services covered under it have to be ascertained.
6. Include a Privacy Policy or Confidential Clause:
To maintain the secrecy of information and protect confidential data from unauthorized access, a Privacy Policy or a Confidential Clause is of fundamental importance. Therefore, in order to allow access to transfer of personal information which is in possession of the Service Provider, a few legitimate details must be furnished.
In case of any private/confidential information shared, transferred or withheld with the Service Provider, the Privacy Clause aims to stipulate the amount of access, degree of security, overseas disclosures, legal compliances of terms and conditions, data breach obligations and consequences for the same.
7. Inclusion of Clause protecting Intellectual Property (IP) in an IT Contract:
Majorly, IT Contracts contain technology attributes that are likely to fall within Intellectual Property Rights (IP Rights). Therefore, protecting the interest of the IP Holder and implementation of such IP needs to be carefully governed by the contract itself. Thus, an IP Clause should list the rights that are accorded as well as the rights that are not accorded to the Purchaser. This shall avoid any confusion in the long run and ensure the protection of the owner’s IP Rights as they are of utmost significance.
INDIAN PRACTICES
The IT Sector in India has witnessed a massive boom in the past couple of decades. With around 75% of the tertiary sector workforce employed by the IT Sector alone, India’s software industry is one of the world’s most accomplished and acclaimed in the IT Arena. India, however, neither has any specific regulation in place to govern Data Privacy nor a Data Protection Mechanism/Framework in place. The Information Technology Act, 2000 (IT Act) is the only law which governs these topics of ‘Personal Data’ and ‘Sensitive Personal Data’.
IT Contracts in India function largely under the umbrella of the Indian Contract Act, 1872 (Contract Act). The terms and conditions which help to govern IT Contracts specifically are not mentioned under any law. The drafting of IT Contracts are, thus, a result of patterns developed from observations and practices followed while drafting contracts in general.
Electronic Contracts in India have also gained a lot of praise, especially in the wake of the Covid-19 pandemic. The number of e-Contracts being entered into has witnessed an upward trajectory. E-contracts are valid as long as it meets all the essential necessities of a contract as stipulated in the Indian Contract Act, 1872 i.e., competent parties, valid consideration, free consent of parties and lawful object. However, the potential of the same might be severely be hindered by the fact that technology is still looked at as a less reliable means of entering into any legal relationship.
INTERNATIONAL PRACTICES
International IT Contracts can be tricky to draft, especially due to the vast jurisdictions they operate in or the representation that they offer. While international IT Contracts are also formulated along the same line, and broadly include the clauses discussed above, there are certain practices that any company or legal professional drafting International IT Contracts must keep in mind:
1. Clarification of laws applicable
When International IT Contracts are drawn up, it is necessary that the laws under which the parties are supposed to function must be clearly stated in the contract, so as to mitigate the risk of potential disputes arising in the future. However, the question of jurisdiction always plays a vital role and it is, thus, suggested that the parties resolve their disputes through Arbitration, under an International Arbitration Institution.
2. Country Specific Review
International IT Contracts typically ask for a country-specific review, which ensures that the cultural and economic nuances of the countries are kept in mind while formulating the contract. Incorporation of the essential aspects of the other country elevates the creation of a stronger bond.
3. Language Barriers
Usually, language can be a barrier in International IT Contracts. This can also create ambiguity in the meaning of the terms and conditions of the contract. Therefore, with a view to avoid such issues, it is necessary that a common language is followed for communications and all other purposes.
AMLEGALS REMARKS
On international and national platforms, practices governing IT Contracts remain more or less the same. While International IT Contracts demand a broader Jurisdiction and Representation Clause, Indian contracts have limited laws governing Data Protection and Privacy issues.
Even though an IT Contract can have a lot of underlying differences as compared to a traditional contract, the common point of importance in all contracts is safeguarding the rights and interests of both parties against liabilities or in case of breach of contract, to ensure that all the requirements are being met and to fulfil the purpose of the Agreement. Protection and processing of data, and protection of the software/technology are the main essentials of all IT Contracts.
In conclusion, it is important to ensure that all such IT Contracts entered into and the clauses contained therein, work in tandem to safeguard the interests of the parties. In the contemporary scenario, IT products and services are of great importance and widespread in various industries in the economy and businesses. Thus, IT Contracts should be treated with special interest and speculation in order to incorporate a secure and reliable approach to deal with such technologies.
For any query or feedback, please feel free to connect with rohit.lalwani@amlegals.com or vineeta.tekwani@amlegals.com.
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