Information Technology (IT) means the equipment, software, services and processes used to create, store, process, communicate and manage information. The IT industry is thriving with new technological advancements that materialize on the horizon every day. Our daily lives have also been adapting with this constant evolution and not a single aspect of our life has remained untouched and unaffected by technology and its usage.
A substantial impact of IT has also been witnessed in law and its functions, the law-making process, implementation, enforcement, and adjudication of disputes. Therefore, indeed, IT will impact contracts and contractual obligations in some way or the other.
As a general practice, these IT Contracts are entered into and governed under the three primary laws that currently exist in India, namely Indian Contract law, Copyright law and liabilities under Tort Law.
Part I of the Series on IT Contracts intends to focus on key provisions that are subjected to inclusion in an IT Contract to protect one’s business and set out clauses which are directed towards the protection of the interest of parties involved therein. Furthermore, it will provide an overview of the basic framework of common law, at the national as well as international level, governing such contracts.
WHAT IS AN IT CONTRACT?
An IT Contract is a document concerning the service of IT assets, including Software Licenses, Subscription Service and other such hosted agreements. In other words, agreements oriented to transactions pertaining to computer software and/or computer hardware could be referred to as IT Contracts.
IT Contracts have largely relied upon similar statutes and principles of the common law of a country and have become one of the most common kinds of legal instrument in today’s digitized world. However, several elements of an IT Contract require special skills and attention as compared to standard contracts.
Therefore, the unconventional properties of IT Operations demand unique legal expertise. Yet, many issues remain unresolved due to lack of specific legislation. However, in order to bring clarity, the Courts try to maintain a balance between the swift development in the field of IT and the traditional procedure of execution of contracts.
Information Technology Services
IT Services are any services fundamental for IT and data management provisions, which consist of application development and custom websites with regards to business analytics, design and development, front and backend management, software, and hardware maintenance, etc.
GENERAL LAYOUT OF AN IT CONTRACT
IT Contracts, just like any other contract, contain Clauses that must specifically define the intent, function, duration and parties to the contract. However, while these Clauses are quite commonly used in all sorts of contracts, they create a lot of room for ambiguity and the rise of potential disputes.
The general layout of an IT Contract is as follows:
1. Purpose and Introduction
The initial part of the contract is the introductory paragraph which identifies the parties to the agreement and the underlying purpose of the contract. It usually contains general information about the contract which includes the date of commencement, termination and duration of the contract.
2. Parties to the Contract
Every contract must clearly define the parties to the contract by explicitly mentioning their names as well as the other necessary details. Every contract must have at least two parties i.e. an offeror and an acceptor. Typically, a defining term is used throughout the contract to refer to such parties. This is one of the essential segments of a contract.
Since IT Contracts deal with the provision and supply of IT Support and Services, they contain a lot of technical terms, the meaning of which need to be clearly defined, so as to avoid any ambiguity and to ensure that there is a clear understanding pertaining to such terms.
Thus, the ‘Definition Clause’ of the contract lays down precise and clear definitions of such terms. It is one of the most important parts of the contract since, in the process of defining all technical terms, it also defines the scope of the services to be provided under the contract.
4. Terms of Payment
The Terms of Payment outlines the details of all the transactions pertaining to the purpose of the contract. The payment structure which is agreed upon by the parties must clearly specify the details of the transaction, the method of payment as well as the timeline of the payment to be made to the Service Provider. The contract may also include the terms and conditions pertaining to any miscellaneous payments that the Service Provider might be entitled to.
5. Services Provided
This clause must contain the details of the services that are to be provided, for the purpose of which the IT Contract is being entered into, as well as the extent of such services. Contractual disputes are most likely to arise when the parties fail to clearly outline and define the scope of the services to be provided under the contract. Any and all additional and critical services must also be clearly stated in the Contract.
The Contract should also clearly state whether or not sub-contracting of services is permitted, the extent to which it may be permissible, and the conditions prerequisite to be met for sub-contracting, if any.
6. Coordination and Communication
The last segment of the IT Contract, as is the case with any other contract, should provide for an Alternate Dispute Resolution Clause, which clearly stipulates the course of action to be taken in case of a dispute arising from or in relation to the terms and conditions of the Contract, as agreed upon by the parties. Usually, in an IT Contract, this would be an Arbitration Clause, with clear details about the process of settlement, the Governing Law, the Seat of Arbitration, etc.
This last part of the contract should also include an Amendment Clause, setting out the procedure to be followed by the parties in case they desire to amend the terms and conditions of the original Contract in any manner. The procedure and steps to be followed to make such amendments should also be clearly dealt with. Furthermore, the contract should also state the impact, if any, that such amendments would have on the rest of the Clauses of the contract.
IT Contracts are agreements between parties that involve or, in some manner, relate to the services or support offered by IT companies. These Agreements are mainly formed to benefit from the technological expertise and methods that suit the organization’s particular needs.
Although IT contracts are made and entered into in the same manner as any other contract, some Clauses are necessary to be included in a contract that specifically deal with the support, services, and solutions offered by IT Companies. The structure of an IT Contract should be drafted in accordance with the intent of the parties, its function, duration and parties to the contract.
While many aspects of IT contracts are the same as they are in conventional contracts, certain aspects demand special consideration and expertise to ensure that they do not causes disputes in the long term. Each IT contract is distinctive in its own right; nonetheless, each of the following must be reviewed to ensure that the contract contains clauses providing for on-time contract completion, within the contractual cost, and with the fewest misunderstandings or conflicts.
Part II of the Series on IT Contract shall discuss about the Essential Clauses of an IT Contract.
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