IT contractors face a new liability

"We can deliver!" Can these words expose contract IT suppliers to unlimited liability? If they're made dishonestly they might, writes Richard Nicholas, technology lawyer at Browne Jacobson.

No more loose sales talk

In particular, if you're a provider of outsourcing services and make a statement that you:

* can deliver a project within certain prescribed timescales and
* are making this statement having carried out a proper analysis of the work involved

Then, if your client believes you, you may well find that your contractual limits on liability will not protect you, as one supplier found to their cost in the long awaited decision between BSkyB and EDS this month.

Legal ruling

It was held by the judge in the case that the statements made by the supplier, EDS, were not only incorrect but were also dishonest, since the person making them knew them to be wrong.

This allowed the client, BSkyB, to claim for Fraudulent Misrepresentation (under the Misrepresentation Act 1967). Since liability for Fraudulent Misrepresentation cannot be limited, when the project went over-budget and missed the deadline, the supplier's £30million cap on liability was ineffective.

Liability has yet to be decided (and HP says it plans to appeal the ruling) but the misleading statements made by the supplier may well mean that it now faces liability of £200million or more.

Implications for IT contractors

The lesson for suppliers – if you're bidding on a project - be careful what claims you make about your ability to deliver and never claim to have assessed the risk unless you truly have. Given the recent history of IT projects delivered late and over budget in the public sector, I suspect there will be a number of client organisations scanning emails in the light of this case to see what optimistic IT providers might have promised.

The judgment in the case suggests that IT contractor companies can be exposed to significant, and potentially uncapped liability, as a result of false claims made at a bidding stage by over-optimistic or over-enthusiastic sales staff on behalf of, or at, the contractor company.

It follows that companies recruiting sales staff or other contractors will want to ensure that those staff are not prone to exaggeration. This may be a reason why some recruiters are becoming more thorough in their vetting of CVs at recruitment stage. If a person is 'creative' on their CV, then they may be similarly 'creative' when it comes to pitching for work; their ability to do the job or indeed their, and their employer's ability to meet deadlines, in order to win a lucrative contract.

With outsourcing projects frequently referring to (and requiring details of) "key personnel," and requiring the IT supplier to vouch for the accuracy of information provided as part of a bid, an overly polished claim by one of those personnel could well land the IT supplier with serious problems.
 

Tuesday 2nd Feb 2010