Delays in IT programmes - what to do when things go wrong - Part 2

By Simon Kenyon & Philip Hay-Jahans
09 Jun 2014 View Comments

Having established the cause of delay, it will then be necessary to return to the contract to assess what liability, if any, arises from the delay and what remedies are available as a result.

Broadly the remedies can be divided into those which are financial in nature, those which result in extensions of time in a milestone based contract and others which will including some which may ultimately lead to the early termination of the contract.

First, has the delay caused loss? There is a tendency to view delays to IT programmes in a personal and emotional manner. However, legally, in the absence of a liquidated damages clauses providing for payment of a fixed sum on breach, then establishing a causal link between the delay and any loss suffered is crucial. It is also worth noting that the ability to fully recover any loss may be impacted by limitation of liability clauses in the contract.

Secondly, where the customer causes delay, the contract may entitle the supplier to an extension of time for delivery of milestones as well as compensation for any losses it incurs as a result. This will have the effect of putting back the overall delivery date under the contract.

Thirdly, what other remedies are available under the contract? This is likely to depend upon how serious the delay is, and indeed the losses caused by that delay. For example:

• A relatively minor delay as a result of a breach of obligations by one of the parties is unlikely to be sufficiently material for the other party to terminate the contract. It is more likely that this would entitle the injured party to claim additional sums within the contractual framework to compensate for the delay.

• Longer delays, either in absolute terms or relative to the timeline of the programme, raise questions over whether the breach is sufficiently material to constitute grounds for termination. This is a difficult question and will often be very fact specific - it is crucially important to get this right as terminating the contract for a reason later found to be unjustified may in turn constitute a repudiatory breach by the terminating party.

• If the decision is taken to terminate the contract, questions will then arise as to the appropriate forum to pursue any claims for damages arising from the delays. It is becoming increasingly common for IT contracts to provide for arbitration as the ultimate dispute resolution procedure, not only for the flexibility it offers parties in choosing the procedure but, most importantly, because it is a confidential process. A court or an arbitration panel would, in any event, expect the parties to have followed the dispute resolution and escalation procedure provided in the contract.

These issues need to be identified and dealt with quickly. It is likely that, in order to obtain the benefit of these remedies, procedural steps will have to be taken by the party alleging breach, such as serving formal contractual notices. Complying with the contractual procedures will help bolster any future claim for damages, reduce any exposure to counterclaims and avoid inadvertently waiving any rights to which a party might otherwise be entitled.

There are three fundamental elements to assessing any delay to an IT programme - what has caused the delay, what liability arises from the delay and what is the remedy? Each of these elements can be complex.

We have set out some top tips for dealing with IT delay below. It is important to remember that the contract and the programme plan are not simply documents which can be drafted at the beginning of a programme and then left in a drawer. They will be key to managing any delay which has arisen in your IT programme, and helping to get that programme back on track.

• Documentation is vital!
• Consider a two stage investigation into the delay - a rapid study to locate and shape the issues, followed by a "deep dive" to deliver the evidence needed.
• Understand the differences between the contractual requirements and what is happening in practice.
• Don't lose sight of the contractual procedures and your rights under them.

The first part of this two-part article can be found here.

Simon Kenyon is partner and head of IT litigation at DLA Piper, and Philip Hay-Jahans is senior manager at Boxwood

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