26 technology
Preventing IT contract disputes
An IT dispute can be disastrous for businesses. The disruption caused when systems are down can be immense and costs can spiral quickly as resources are diverted to handling the issue. Nicole da Silva of Penningtons Solicitors LLP looks at areas where problems commonly arise
Urgency – for good business reasons, the client needs to launch a new system as quickly as possible. This can result in the parties implementing the project without fully agreeing its scope, timetable or price.
Scope – although the scope of the project is generally defined in the contract, often it evolves as the project progresses (’scope creep’). Scope creep can be exacerbated if the client does not properly explain its requirements or fully understand the supplier’s proposal.
Milestones – often IT contracts have ’milestones’ which trigger payments. Disagreement over whether milestones have been reached can lead to disputes over payment.
Termination – many IT disputes arise from a party’s attempt to terminate the contract. Usually, the contract will allow termination for “material breach“. What constitutes a material breach is a frequent area of contention. Other disputes arise over obligations after termination or whether a party’s actions are tantamount to a rejection of the contract.
How to avoid the most common pitfalls
The simple answer is clarity:
• clearly define scope, milestones, when a party can terminate and the parties’ duties, including after termination.
• clients should consider hiring a consultant to assist in defining work specifications and supervising performance, if in- house expertise is not available.
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• suppliers should not ’down tools’ at the first onset of a dispute, to avoid inadvertently putting themselves in repudiatory breach.
• be conscious that the inherent nature of IT projects involves change, and build in flexibility where possible. Consider an overall price cap rather than a fixed price or a window within which go-live will take place. Also, take care to ensure that milestones set are realistic.
• as the client, try to ensure the contract is tailored to your specific needs. If IT providers have tendered for the work acting on their standard terms, compare those terms. Look out for exclusion clauses or clauses limiting liability. The lowest headline cost may not be the best solution.
• think carefully about governing law and dispute resolution clauses. Alternatives to court action, such as mediation, arbitration or expert determination should be considered.
• ensure that you are in a good position to address a dispute, with a clear document retention policy. This includes documents which may be stored on employee- owned devices (BYOD). Such policies will help you deal with the disclosure process in litigation.
Details: Nicole da Silva
nicole.dasilva@penningtons.co.uk www.penningtons.co.uk
Technology businesses benefit from enhanced tax reliefs
A new scheme to encourage investment in very early stage companies – those with 25 or fewer employees - was announced in the Draft Finance Bill 2012. Draft legislation suggests that investors, including directors holding less than 30% of the company, can receive initial tax relief of 50% on investments up to £100,000 and CGT exemption for any gains on the SEIS shares held for the three year qualifying period. For 2012- 2013 only, a CGT exemption will be offered in respect of gains realised on the disposal of assets that are invested through SEIS in the same year
Tim Smith, technology partner at Baker Tilly in Basingstoke comments: “We welcome the new Seed Enterprise Investment Scheme, although given the size restrictions it is likely to be of benefit to only the smallest of companies. However, across the Thames Valley region, there are many micro-businesses in the technology sector that could well benefit from the new scheme.”
The maximum cumulative investment per company is £150,000 and the SEIS will only apply to small recently incorporated companies which are embarking on a genuine new trading venture. Investors will need to be careful as to timing if they intend to invest larger sums, to ensure EIS relief is not precluded.
The main features of SEIS include:
• Investors can receive initial income tax relief of 50% on investments up to £100,000 per tax year in qualifying shares issued on or after April 6, 2012 and gains on shares within the scope of the SEIS will be exempt from capital gains tax;
• A CGT exemption will be offered in respect of gains realised on the disposal of assets in 2012- 13, that are reinvested through SEIS in the same year;
• The scheme will apply to recently incorporated companies which are carrying on or preparing to carry on a genuine new trading venture which should not involve the
Tim Smith
transfer in of a trade or the acquisition of trading assets from connected parties;
• All the money raised must be spent with three years for the purpose of the qualifying business activity and relief cannot be claimed until at least 70% of the money raised has been spent;
• Before a company can raise further money under the EIS/ VCT rules it must have spent at least 75% of any money raised under SEIS.
Details: Tim Smith 01256-486815
tim.smith@
bakertilly.co.uk www.bakertilly.co.uk
THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2012
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