Legal Practice Briefing
28 May 1993
GOVERNMENT INFORMATION TECHNOLOGY CONDITIONS (GITC)
It has been estimated that Australian public sector agencies purchase approximately 40% of all Information Technology (IT) goods and services sold in Australia. The Commonwealth public sector purchases approximately half of this. However, despite the size of the public sector market and the vast number of agencies involved, until recently there had been very little co-operation between the agencies in terms of sharing information or utilising standard contract conditions.
Background to the GITC
In 1989 the Commonwealth and the States decided to jointly produce standard contract conditions for use in a range of transactions in the IT procurement area.
The Government Information Technology Conditions Working Party, comprising the Commonwealth, all the States and Territories, the Brisbane City Council and several State statutory authorities, was set up to do this work.
The two Commonwealth 'founding' members of the working party were the Attorney-General's Department and the Department of Administrative Services. The former provided a full-time lawyer to draft the conditions and provide legal advice. At a later date the former Department of Industry, Technology and Commerce attended meetings to provide an industry development perspective.
The working party began on contract conditions for hardware acquisition and installation, hardware maintenance, and software licence and support. Because the members of the working party were almost exclusively from central contracting areas, they decided that the conditions would be drafted in a form which was suitable for the government IT contracts set up by those areas. In the Commonwealth these arrangements are known as Common-Use Contracts ('CUCs'). In the IT area these are the 'PE' series of contractual arrangements. In addition to the relevant sets of conditions, an umbrella agreement, called the Head Agreement Provisions was also prepared. It regulates how the CUC is conducted between the central contract authority and the supplier.
The first three sets of conditions: hardware acquisition and installation; hardware maintenance; and software licence and support, together with the accompanying Head Agreement Provisions, were launched for immediate use on 13 June 1991.
In the Commonwealth there are many IT contracts which do not arise under the CUC system. Where an agency requires an IT product or service which is not available under a PE contract, a separate contract needs to be negotiated. The Legal Practice has prepared 'stand-alone' sets of conditions which can be used in such circumstances. The GITC Software Licence is the most commonly used stand-alone set of conditions.
After the first three sets of conditions were launched, work began almost immediately on two new sets of conditions: the Systems Integration ('SI') Conditions and the IT Consultancy Services ('ITCS') Conditions. Priority was given to the SI Conditions because the Commonwealth was in the process of setting up its Systems Integrations Panel and a set of conditions was needed for contracts being placed with that panel. The SI Conditions and the ITCS Conditions, both of which were produced in a 'stand-alone' form, were launched for use on 9 October 1992.
The GITC preparation process was a long one There were many complex issues to resolve and there were many parties involved. The working party held extensive consultations with the IT industry and this consultation process proved extremely valuable for both government and industry representatives. Each acquired a much greater understanding of the other's position. Several hundred amendments, many on major issues, were made to the conditions as a result of the consultations. While there was broad consensus on most issues, agreement was not reached on the issue of liability (see below).
The activity of the working party is continuing, although in a much reduced manner, now that conditions which satisfy the most urgent needs of the members exist. Conditions covering.software development projects are still planned for production by the working party.
The GITC do not cover all transactions in the IT area. For example, there are no conditions covering leasing of hardware, and none covering the major 'outsourcing'arrangements. This is partly because of the extensive work required to produce each set of standard conditions. Unless there is very strong demand for conditions, the work is simply too time-consuming and expensive to undertake. It is also impossible to use standard conditions in some transactions. For example, in major outsourcing projects, the requirements of the parties vary enormously from project to project. However, the Legal Practice does have other precedents for use in many IT transactions and the GITC can of course be drawn on where their standard clauses are appropriate.
Using the GITC
Where the GITC are used as the contractual basis for CUCs, it is not possible to negotiate changes to these conditions. However, the conditions do allow matters not dealt with in the 'base' conditions, and which require agreement between the parties, to be set out as additional conditions. This should be done as part of the purchase order (together with a call-up of the base conditions, for example, PE44; PE50). The additional conditions may not, however, override the base conditions (for example, on the liability regime under the contract).
Outside of a CUC situation, the stand-alone conditions should be used. The conditions have been drafted to try to cover as many matters as possible that can reasonably be dealt with in a standard manner. However, if the parties, for whatever reason, feel that the standard conditions should be modified to suit their particular requirements, or that additional conditions should be added, then there is no difficulty. But it is wise for a purchaser to think carefully before agreeing to any amendments proposed by a supplier. Legal advice should be sought if the amendments are more than minor ones. After extensive consultation with the industry, the working party took the view that the standard conditions provided reasonable protection for the government purchaser, without imposing unduly onerous obligations on the supplier, so unless clauses are not actually relevant to the particular circumstances, no major changes would usually be required.
GITC SI Conditions
The GITC SI Conditions are by far the longest and most complex set of conditions produced by the working party; the Conditions reflect the complexity of major IT system acquisition.
The SI Conditions are designed to cover all aspects of a project of this kind : acquisition of hardware and software; software development; project management; data migration; security for performance; and system integration, testing and acceptance. The Conditions also provide a mechanism for accessing the CUCs. Whether the CUCs are accessed or not determines the ultimate legal structure of the arrangement between the government purchaser and the systems integrator. On that issue alone careful thought by the customer, and legal advice, is essential.
Extensive negotiations will usually be required in projects of the kind contemplated by the SI Conditions, particularly about the content of the Schedules. The SI Conditions can be modified if required (for example, to delete the software development conditions if no software development is to proceed). Legal advice on modifications to these conditions should be sought.
The SI Conditions contains 18 Schedules. The Schedules are essentially of two kinds: those which must be completed by the customer before the contract is signed, and those which must be understood by the customer before the contract is signed. Not all the Schedules may be necessary: this matter should be discussed with your legal adviser.
The Schedules which must be completed by the customer, for example, the "Customer's Functional Specifications" and the Project and Implementation Plans to name by two of these, require an enormous amount of work on the customer's part, and the time taken to prepare, or finalise these should not be underestimated. Your legal adviser can provide guidance on the preparation of these documents but, of necessity, the bulk of the preparation work must fall on the customer's project team who are more familiar with the technical and other details of the system acquisition.
A copy of the SI conditions should always be included in the Request For Tender (rather than just saying 'the GITC SI Conditions will be applicable'). This ensures that all parties are clearly aware of the basis on which the contractual arrangements are to proceed.
The issue of liability proved one of the most intractable in discussions with the IT industry. This is not unusual. Liability is always a difficult issue in both public and private sector IT contract negotiations. In the private sector, most purchasers do not have any negotiating strength at all vis-a-vis the suppliers. In these circumstances the issue is resolved quickly in favour of the supplier's preferred position. However, the Commonwealth, which is the largest purchaser of IT products and services in Australia, is potentially in a very strong negotiating position, and its aim is naturally similar to that of the suppliers when negotiating on this issue: to protect itself against loss. This position has been strengthened by the increased competition among IT suppliers both internationally and domestically and a growing acceptance among them that it is reasonable for them to carry the risks for those areas within their control
The working party maintained that it was undesirable to include, in a set of standard conditions, a clause which allowed a supplier to limit its liability to the customer in all circumstances. The IT Industry, on the other hand, wanted to include a condition in every case which would 'cap' their potential liability to no more than the value of the contract.
The position eventually reached was that a GITC 'capping clause' was drafted which was to be used if agreed between the parties; that is, on a case-by-case basis. The clause may be modified, but government purchasers should seek advice from the Legal Practice on this complex issue before committing to a particular position on liability. The clause was not actually included in the first three sets of Conditions, or the ITCS Conditions but was provided as a separate clause. The clause is included in the GITC SI Conditions.
The issue of liability under systems integration and software development contracts was considered by the Federal Cabinet in February 1992. The IT industry made it known to Prime Minister Keating that it was unhappy with the position adopted by the working party and reiterated its views on its own position. Cabinet did not accept the industry's position. It decided that:
- liability under systems integration and software development contracts should be negotiated on a case-by-case basis;
- agencies should do a risk assessment in each case to determine the level of risk under the proposed contract; and
- if appropriate, the supplier's liability could be limited as agreed between the parties.
The capping clause of the SI Conditions provides a basis for negotiations on this issue. The liability regime under each IT CUC was unaffected by the cabinet decision (that is, the issue of liability is not open to negotiation once the Department of Administrative Services has determined the liability regime for a particular CUC).
ISSN 1448-4803 (Print)
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The material in this briefing is provided for general information only and should not be relied upon for the purpose of a particular matter. Please contact the Legal Practice before any action or decision is taken on the basis of any of the material in this briefing.