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Taking Out a Contract

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Open the bottom drawer, blow the dust from those IT contracts and go searching for the demons and the diamonds that lurk within.

The health insurance commission recently renegotiaated a contract; and got access to software running on up to 1200 more Mips for $1.6 million less that it used to pay.

Canon has a team working its way through a 40-page contract, dense with an array of demands from the prospect (a division of one of the big four banks), which even if it wins will net just $200,000 revenues for the printer supplier.

St George Bank has renegotiated its volume licensing contracts for open systems software and brought down its annual charge from $6.5 million to $5 million.

Welcome to the wild world of modern IT contract negotiations.

Time was when an IT contract was drawn up, looked over, signed and put in the bottom drawer. Today IT contracts - whether for software, hardware, peripherals, communications or services - are more lively documents, and in best practice situations perform as an active management tool by clearly defining the outcomes expected from the supply of goods or services.

Best practice contracts also keep the parties out of court if something goes wrong. Dr Gordon Hughes, a partner with Blake Dawson Waldron, says by incorporating performance measures, defining the means of monitoring performance and also nominating performance level rebates, a good contract has "both the offence and penalty pre-prescribed".

It does not always work that way, though. IT litigation is rare in Australia, but according to some lawyers it is on the rise.

One high-profile dispute in negotiation at time of writing is between the building supply company Crane Group and PeopleSoft. In July Crane revealed the extent to which an IT project using JD Edwards software (now owned by PeopleSoft) had blown out. The system was installed after four years, but Crane took a $28.7 million pre-tax write-down on the software in its 2004 annual results.

After disclosing the problem in July, Crane clammed up, refusing to discuss how the dispute negotiations are proceeding. All a spokesperson for the firm would say is that there has been no court action at time of writing.

Another lawsuit, dating back to 1996, was finally put to bed this year. In 2001 Justice Hansen in the Supreme Court of Victoria ruled on a claim by RACV Insurance and RACV Group Services against Unisys Australia regarding a failed IT project for the design, supply and installation of a work flow management system based on the imaging of documents. The judge found in favour of RACV and awarded damages in the order of $4 million for expense wasted on the contract. Unisys appealed the decision but in May, the Full Court of the Supreme Court of Victoria unanimously dismissed the appeal.

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Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

More about: ACT, AIIA, Australian Information Industry Association, Billion, Blake Dawson Waldron, Blake Dawson Waldron, Canon, Clayton Utz, Commonwealth Bank, Corrs Chambers Westgarth, CRANE GROUP, Creative, Deacons, GSA, Health Insurance Commission, HIS Limited, IBM, IBM GSA, JD Edwards, JP Morgan, Logical, Meredith, Morgan, Newman, Nike, PeopleSoft, Promise, ProVision, RACV, Securities and Exchange Commission, St George Bank, Sydney Airport, Telstra, Totality, Tricon, Unisys, VIA

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