Are you missing out on some potentially lucrative ICT contracts?

An estimated £13.8 billion was spent in 2011/2012 by the public sector on ICT. Have you been put off trying to win a slice of this because you think the procurement process is too complex and will require you to invest too much time and cost to get the necessary security clearances without a good chance of success because the incumbent supplier will most likely win? You are not alone.   The OFT Market Study has found that these are real barriers to competing which prevent suppliers from tendering. But it also found that suppliers themselves are hindering competition in this market by complex pricing and a lack of transparency. Things are changing though and the process of tendering for government and local authority ICT contracts may get easier.

In January the European Parliament voted to introduce new directives to help simplify the process, which may make tendering a simpler and more attractive process for small and medium sized suppliers.  In particular, the reduction in the documentation required from bidders will mean suppliers can submit self-declarations through a standardised document. Only the winning bidder will now have to submit formal evidence.   The introduction of a mandatory requirement for electronic communication in public procurement could increase accessibility to SME’s and the division of contracts into lots is also being encouraged with turnover requirements being limited to a maximum of twice the estimated value of the contract, except in justified cases.  Although the government has 2 years to implement the directives, it has pledged to get the rules onto the UK statute books quickly (which means we might see them by the end of this year). So ICT suppliers not currently involved in procurement may want to start considering whether tendering could now be a viable option for them.

The Impact of the New Consumer Contracts Regulations

Background

If you sell goods, services or digital content to consumers, the recently published Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) (the “Regulations”) are likely to affect the way you carry out your business.

The Regulations will apply to consumer contracts concluded on or after 13 June 2014, revoking the current ‘distance selling’ and ‘doorstep selling’ regulations.

Various categories of goods and services, including contracts dealing with gambling and package holidays, are excluded from the scope of the Regulations. Other categories, such as prescription items and passenger transport are partially exempt.  Otherwise, the Regulations will apply to and distinguish between “On-premises contracts” (concluded at the seller’s business premises e.g. in a shop), “Off-premises contracts” (concluded away from the seller’s business premises where both parties are present e.g. when visiting homes), and “Distance contracts” (concluded where the parties are not physically together e.g. online) as outlined below.

Information

Sellers will be required to bring certain “pre-contract information”, such as delivery charges and the seller’s complaints policy, to a consumer’s attention before a contract is entered into. This obligation will be more onerous for off-premises and distance contracts, where the consumer must also be given a copy of the contract or confirmation in a “durable medium” allowing them to store and reproduce the information, such as paper or email, within a reasonable time and not later than the delivery of goods or commencement of services.

Order Process

In relation to distance contracts, it must be made clear to the consumer that an order confirmation will result in an obligation to pay.  For online sales, this will mean that any button the consumer clicks to show that they wish to enter into a contract must be labelled unambiguously to the effect of “order with an obligation to pay” or “pay now”; “continue” or “confirm” is unlikely to be sufficient.

Additional Payments

Consumers cannot be required to make payments in addition to the price agreed without “express consent”.  Pre-ticked boxes which bolt-on costs during the online order process, such as for an extended warranty, will be prohibited.  A pre-ticked box will still be allowed for free products and services, such as a newsletter.

Cancellation

For consumers entering into off-premises and distance contracts, their right to no-fault cancellation  (the “cooling-off period”) will be extended from seven to 14 calendar days from the date they received the goods or, for contracts for services or digital content, from the date the contract is concluded.  Cancelling the main contract will automatically terminate any supplemental agreements, such as insurance.

Under the Regulations, a seller can only start to provide services or digital content during the cooling-off period if a consumer makes an express request, and acknowledges that they will lose their right to cancel if the contract is fully performed, or once the supply of digital content has begun.

The Regulations include a model cancellation form which must be provided to consumers, and they also set out model instructions for cancellation, the insertion of which would ensure a contract complies with the cancellation provisions.

Failure to inform a consumer of their cancellation rights could result in the cooling-off period being extended by up to 12 months, during which time the consumer would not be obliged to pay for any services provided.

Refunds

Where a consumer elects to withdraw from the contract during the cooling-off period, they are entitled to be reimbursed for all payments including the costs of delivery.  The seller must also pay the costs of returning the goods unless otherwise specified in the contract.  Once goods have been returned, or proof of return provided, the seller will have 14 days (rather than 30) to reimburse the consumer.  Sellers are entitled to make a reduction for use beyond what is needed to check that goods are as the consumer expected.

Delivery

Where a contract is silent as to the time for delivery, the Regulations imply that delivery must occur without undue delay, and in any event within 30 days.  This is more stringent than the current requirement of delivery within a “reasonable time”.

Telephone Lines

Telephone helplines operated for use by consumers with contract queries must not be charged at more than basic rate.

Conclusion

All sellers dealing with consumers are likely to need to update their terms and conditions and ordering processes in order to implement the Regulations, and failure to do so by the 13 June 2014 deadline could result exposure to significant costs.

Excluding the foreseeable

Image; Dwight Burdette (wikimedia commons)

Image; Dwight Burdette (wikimedia commons)

The Court of Appeal’s recent decision in John Grimes Partnership Limited v Gubbins [2013] EWCA Civ 37 has made it clear that if a contacting party can reasonably envisage a particular type of loss occurring as a result of their actions, they could be held liable for that loss.

In the case, the Court of Appeal held that an engineer who caused a delay in completion of a development project was liable for damages caused by a fall in the market value of the property.

The facts

Mr Gubbins engaged John Grimes Partnership Ltd (JGP), a consultant engineer, to design and complete a road and drainage system by March 2007 on land acquired for residential development purposes.

In contravention of an expressly agreed deadline, the works remained incomplete at the end of March 2007. Mr Gubbins subsequently engaged another consultant engineer in April 2008 who re-designed the road and drainage system, gaining quick local authority approval.

In the interim, JGP commenced proceedings against Mr Gubbins for unpaid fees of £2,893 and Mr Gubbins counterclaimed for £20,000 in respect of the defective, unfinished works and the breach of the expressly agreed deadline, claiming that as a result there had been a reduction in the market value of the private residential units, a reduction in the offer from a Housing Association for the affordable units and an increase in building costs.

At trial the High Court found in favour of Mr Gubbins and JGP appealed on the basis that its responsibilities under the contract did not include a duty to protect Mr Gubbins against losses due to a fall in the market value of property.

Court of Appeal decision

Dismissing the appeal, the Court of Appeal held that, although in some cases it may be found that a party to a contract had not taken on responsibility for a particular liability (even if that liability was reasonably foreseeable), the general position is that a contracting party will be liable for all losses arising naturally, according to the normal course of things, from the breach of contract and all losses which may reasonably be supposed to have been in the contemplation of the parties at the time they made the contract, as a probable result of the breach.

On the basis of the particular facts, the Court of Appeal held that JGP knew that Mr Gubbins intended to use the land for development purposes and knew that there was a risk that there could be a fall in the market value of the property if the works were not completed on time. Accordingly, JGP was liable to Mr Gubbins for the losses suffered even though such losses were not within JGP’s control and far exceeded the £15,000 fee payable to JGP under the contract.

Lessons to learn

The case demonstrates that the principle of foreseeability of loss still remains the standard mechanism for assessing remoteness of damage.

Unless a party could not possibly be taken to envisage responsibility for a particular type of loss or there are some other special circumstances which render the implied assumption of responsibility inappropriate for a particular type of loss, it is prudent to expressly exclude liability for particular events by including suitable exclusion clauses and limitation clauses in the contract.

Why exclusion clauses shouldn’t exclude too much

© John Allan and licensed for reuse under this Creative Commons Licence

© John Allan and licensed for reuse under this Creative Commons Licence

A recent Court of Appeal case shows the dangers in using standard, widely-drafted exclusion clauses without thinking carefully about what types of loss might arise in practice – particularly where the effect of the clause would be to leave one party without any remedy for the other’s breach.

Background

Kudos Catering (UK) Ltd entered into a five year contract to provide catering services to the Manchester Central Convention Complex Ltd (MCCC). MCCC lost confidence in Kudos and two years before the end of the term the contractual relationship broke down with both parties alleging repudiatory breach. Kudos claimed £1.3 million for loss of profits that would have been earned during the remaining term of the contract.

The case centred on the wording of clause 18 of the contract which was headed Indemnity and Insurance” which provided that MCCC would have:

no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits…suffered by the Contractor or any third party in relation to this Agreement.

In the High Court it was held that clause 18.6 only had one effect: to exclude all liability of MCCC for Kudos’ loss of profit.

Court of Appeal decision

In overturning the High Court decision, the Court of Appeal found that if the contract had continued for the intended five year term, Kudos would have made a profit. The court further found that if MCCC was able to exclude all liability for loss of profit, it would effectively deprive Kudos of any sanction for MCCC’s non-performance. For this reason, the Court of Appeal held that clause 18.6 did not exclude liability for Kudos’ loss of profit where such liability arose out of MCCC’s repudiatory refusal to perform the contract.

In coming to its decision, the Court of Appeal noted the following key points:

  • the exclusion of loss of profit was ‘buried’ in a clause headed clause 18 “Indemnity and Insurance”
  • if the clause did exclude all liability for loss of profit, it would effectively deprive Kudos of any sanction for a breach of contract by MCCC which would render the contract an unenforceable statement of intent
  • if the parties had intended to exclude liability for loss of profit in the event of refusal to perform the contract (rather than for defective performance), it should have been set out unambiguously in a stand-alone clause

Some practical lessons

Casting the exclusion clause net too far may not provide the protection envisaged. In order to avoid the clause being rejected as ‘too wide’ it will be prudent to bear in mind the following points:

  • Avoid the temptation to ‘bury’ certain key limitation and exclusion clauses
  • If an exclusion is of particular importance, put it in a standalone clause (under a suitable heading) to bring it to the attention of the other party and to avoid a court interpreting it by reference to surrounding sub-clauses
  • Although the court in the current case refused to provide a distinction between refusal to perform and an inability to perform, consider inserting a clause to expressly deal with repudiation
  • Consider whether the innocent party will have an adequate remedy for breach as the courts will not look favourably on a clause that seeks to remove any remedy for failure to perform or for defective performance

Cloud Service Contracts – Best Practice

The use of cloud computing services has become mainstream in almost all areas of business in recent years. However, many aspects of commercial and legal best practice remain unclear, with many cloud contracts failing to take account of the fundamental differences between cloud services and “traditional” software.

 The Cloud Industry Forum (CIF) has published a white paper which reports the findings of a study carried out by the CIF into the adoption of cloud based services. The study identifies some best practice points for both cloud service providers and end users in relation to the following key issues:

  • Contract term
  • Termination, migration and transfer of data
  • Data security
  • Service levels (SLAs)
  • Liability

We have prepared a Briefing Note (pdf) which discusses these issues and takes a look at the best practice points summarised in the CIF’s white paper.

The need for good faith in outsourcing contracts

Earlier this year, in the case of Compass Group UK and Ireland Limited (trading as Medirest) v Mid Essex Hospital Services NHS Trust, the High Court considered a clause in an NHS outsourcing contract for catering services which obliged the parties to “cooperate with each other in good faith”. The contract allowed for deductions to be made from service payments due to the service provider in the event that it failed to meet the service levels under the contract.  On various occasions the NHS Trust deducted service credits and awarded service points which the service provider argued were grossly miscalculated. These service credits included a £46,320 deduction for out of date ketchup sachets which were found at the back of a cupboard.

The court found the outsourcing contract, by its nature, “required continuous and detailed cooperation between the parties at number of levels if it was to work smoothly” and it was in this context that the court interpreted the good faith clause.  The court held that the NHS Trust has exercised its contractual power in an arbitrary, capricious and irrational manner and that this constituted a material breach of the contract.

It seems that in recent years some large organisations have begun taking a more aggressive, procurement-style approach to the negotiation and ongoing management of outsourcing contracts. Whilst this case turned on its specific facts, it illustrates the importance of using cooperation and dialogue to resolve problems which will inevitably occur in long-term outsourcing contracts and emphasises the need to avoid taking an overly aggressive approach to contract negotiation and management.

With this in mind, we have prepared an article outlining some of the key considerations (PDF) which should be taken into account when drafting a successful outsourcing contract.

“No derogatory links”: Censorship? Or just lazy drafting?

The latest row to hit the London Olympics – though somewhat more minor than the news earlier this week about bringing in the army to plug the gap in security left by G4S – is over the “linking policy” in their website’s terms of use. This states that:

You may create your own link to the Site, provided that your link is in a text-only format. You may not use any link to the Site as a method of creating an unauthorised association between an organisation, business, goods or services and London 2012, and agree that no such link shall portray us or any other official London 2012 organisations (or our or their activities, products or services) in a false, misleading, derogatory or otherwise objectionable manner.

It’s those last words that have caught people’s attention. “Hang on! Are LOCOG seriously saying that you can’t link to their site if you say nasty things about them? That’s censorship!”

I’m pretty sure that there is absolutely no intent on LOCOG’s part to censor people through this policy. That’s because I’m pretty sure there is absolutely no intent on LOCOG’s part concerning this provision, full stop. A Google search quickly shows up literally hundreds of other sites using precisely the same wording:

So what this shows is not the sinister, dissent-stifling instincts of LOCOG, but the dangers of unthinkingly adopting standard legal precedents without thinking through how they might read to others. This can happen, in particular, with the sort of legal terms that absolutely no one ever reads (such as website terms of use) except on that one occasion when you’re a massively high-profile organisation whose motives some people are inclined to mistrust (such as when you’re the London Olympics).

This “linking policy” is clearly someone’s standard boilerplate, and has been used without incident by them for years. One wonders whether any of the companies using this wording have ever sought to tried to enforce it against someone by insisting that they remove a “derogatory” link. In most cases I suspect they wouldn’t get very far – just as I suspect they wouldn’t get very far if they tried to enforce the “if you disagree with these terms you must stop using our site” wording that is often found in such terms.

Maybe one good thing that could come out of this incident is to make companies think more carefully about the information they provide on their websites. Do they need to be so “legalistic” in the first place, and have they given any thought to whether they would ever try to enforce any of the restrictions they claim to impose?