From the drafting stage to actual collaboration – ensure that your IT projects are successful by building them on the right contractual foundations.
The importance of IT contracts in the digital world
In today's digital world, IT projects play a central role. However, practice shows that the majority of all IT projects cannot be realised and completed as planned. This makes suitable IT contracts all the more important as they form the basis of and the safety net for project realisation. They not only serve to distribute risk between the parties but are also essential for establishing clear and binding provisions governing the content of the project and its realisation. If there is no IT contract, the statutory law applies. But the provisions of the German Civil Code (BGB), some of which are over 100 years old, were not designed for modern IT projects. Without suitable contractual provisions, this leads to considerable regulatory gaps and the allocation of risk is often inappropriate.
Closing gaps and minimising risks
Well-drafted IT contracts can close many of these gaps – in a way tailored to the specific project and the intentions of the parties. They allow the parties to adjust the risk allocation to the situation. However, there are limits to the freedom of contractual arrangements. Laws simultaneously act as basic scaffolding and define the legal framework. With regard to general terms and conditions, the scope is very narrow under German law, even in the B2B sector. This significantly limits the scope for deviations from the law when it comes to general terms and conditions. Individually negotiated provisions are an exception but these are subject to certain strict conditions.
What makes a good IT contract?
A good IT contract sets out the project, the services and the associated objectives as well as the actual collaboration between the parties as accurately as possible. Simplistic contract templates are often only of limited use; the requirements and expectations are too individual unless the contract is simply for the purchase of standard software. Close coordination between the legal, technical and business teams is necessary to understand the respective requirements and objectives and to be able to set these out accordingly in the contract. It is precisely in the course of this interdisciplinary cooperation that the drafting of an individual contract helps to develop and check that the parties (and the various teams at a party) are on the same page. Before something is put into words and therefore made more precise, the parties may only think they are in agreement. Without a structured and close exchange, the different expectations and misunderstandings often only come to light when the project is already underway. This frequently leads to stoppages and increased costs.
In addition, comprehensibility and clarity are crucial because the people who draw up and negotiate the contract are not necessarily the ones who will be implementing it. The parties should ensure that the structure and wording of the contract are comprehensible, especially in the case of larger projects or lengthy contractual terms. The benchmark for comprehensibility should be that specialists not involved in the negotiations or the project itself are able to understand what is meant.
Bringing consistency to a complex contractual agreement comprising numerous documents is more than just a cosmetic administrative task. Especially where different workstreams are working on the contract in parallel (e.g. on technical documents or the remuneration mechanism), it is crucial to avoid contradictions between different parts of the contract. Key terms should be clearly defined and made available to all teams as a glossary. Regular checks for possible contradictions and sufficient cross-team coordination can help to avoid inconsistencies and ambiguities.
Helpful guide and de-escalation in the ongoing IT project
A good IT contract serves as a helpful guide while the project is ongoing or services are being provided. A suitable contract sets out who has to do what, when and how. A contractual governance structure specifies contact persons for specific topics (e.g. IT security incidents) and defines how often various specialist groups and governance levels will meet (e.g. project management, steering committee). Governance also includes suitable reporting. The contract can, for example, specify who is to prepare which report at which intervals as well as the content and form of these reports. The progress of the project and of the provision of services can be monitored on an ongoing basis by way of suitable governance. This way potential problems can be recognised early on so that the parties can take countermeasures in good time.
An IT project does not always go according to plan – in fact it very often does not. A suitable IT contract anticipates potential challenges and offers de-escalating solutions. A suitable change request procedure can provide the necessary flexibility and at the same time a structured, documented procedure for changes to the scope of services or adjustments to the course of the project. If differences of opinion or ambiguities cannot be resolved at project level, a clearly regulated, multi-stage conflict resolution procedure can help.
Realistic formal requirements and other conditions can help to ensure that the contract can be implemented in practice. When is an email or when are the minutes of a meeting sufficient and what needs to be communicated in writing? The expectations here vary greatly depending on the project and the corporate culture. Excessively strict formal requirements can lead to IT project drowning in bureaucracy, while overly vague specifications can lead to a lack of documentation and confusion as to what actually applies. Clear documentation of changes in the contract or project scope is essential to ensure a clear basis for collaboration throughout. A good IT contract grows with the project – with bad contracts, the text of the contract and the actual reality of the project drift further and further apart.
A modular IT contract can create further flexibility, for example by allowing new projects and services to be included through additional statements of work.
You can find out more about this in our blog series on IT projects (in German). You can subscribe to this blog series via the RSS feed to be informed about new posts.
