The penalty clause offers some comfort but, as Meredith acknowledges, "this compensation usually does not cover the cost of the problem or outage; the best defence against non-performance is non-renewal".

In a previous incarnation as head of the logistics arm of manufacturer Nylex, Geraldine Livingstone once suffered the flip side of non-renewal: one of her contracted suppliers simply stopped supplying. "One Friday night the freight company said that they wouldn't be picking up on the Monday. I had to go back to the company we'd let go six months before and ask them to take over the job. I think you call it cap in hand."

Since becoming general manager of shared services, and with responsibility for Nylex's IT systems, Livingstone says: "I've not quite had that happen [again]."

She is, however, somewhat sceptical about the protection that IT contracts really deliver. With sole responsibility for IT contracts she generally takes on most negotiations herself, although does approach the in-house counsel to look over very large contracts such as that with Telstra.

She says that the generally protracted contract negotiations that take place prior to a purchase are a source of frustration, especially as there "is all this information about the penalties and the liabilities. You spend a lot of time negotiating this to no good effect. It's all in legalese and you're in no man's land. In reality there's very little protection."

Some protection, however, can be won if companies review their software contracts or licences with an eye to copyright issues. Although software vendors rarely use the feared Anton Piller orders to raid premises looking for pirated software these days, they do still take legal action when a company is suspected of breaching copyright. To protect themselves many companies perform software audits, which can occasionally deliver savings.

Michael Page, chief manager of open systems at St George Bank, audits the bank's systems to ensure it has licences for all the software it uses, and where it does have licences check that the software is actually being used and not sitting dormant. As a result he has been able to renegotiate contracts, getting the volume licence for the desktops (9500 machines by year's end) down from $6.5 million to $5 million, and also cut the costs of other non-mainframe software used by St George from $1.5 million to $170,000 a year.

As well as saving the bank money he is now more confident that it complies with Australia's copyright laws.

SIDEBAR: Boxed In by Sarbox

Staged payments exit stage right

Just when you thought it was safe to utter the phrase Sarbanes-Oxley, it appears that the US legislation intended to tighten up corporate governance has yet another ramification.

Dr Gordon Hughes, a partner in law firm Blake Dawson Waldron, says the structure of contracts issued by US IT vendors is changing because of the Sarbanes-Oxley legislation. Under Sarbanes-Oxley a company cannot book any revenue until it is free of any contingency. Intended to avoid companies booking rubbery revenues that might bounce right back in shareholders' faces, the provision also means that US-based suppliers that are obliged to comply with the law are increasingly resistant to any form of staged payment.

"They are getting more creative about getting a greater payment upfront and for that to be free of contingencies," says Hughes. IT purchasers need to be aware of this during negotiations.

Another change comes courtesy of the US's Securities and Exchange Commission rules regarding regulated entities. According to Hughes, if one company shares the same auditor with another company it can prove difficult to forge close business relationships or joint ventures.

"In the past you might have had large consulting firms and IT suppliers working together on a contract." That, he says, cannot continue if for example the consulting firm has an audit arm that is working with the IT supplier.