Information technology in Sweden has traditionally relied on standard contracts produced by the trade organizations, mainly suppliers. In recent months several new standard contracts have been issued and use of them is growing rapidly. Different business organizations have adopted their specific standard form agreements. Often representatives of both the supplier and the customer participate in the drafting of these agreements. The courts also place a strong emphasis on standard form agreements and they are usually regarded as forming an expression of a certain business practice. Therefore standard form agreements may fill up individual agreements on matters that are not regulated by the parties.
This overview describes the three standard form agreements that are or will be applied to agreements in the Swedish IT sector. These agreements are:
- the General Terms and Conditions IT Project;
- the General Terms and Conditions Internet Project; and
- the General Terms and Conditions IT Services.
IT Project and Internet Project were published in 2000. IT Services will be published in the spring of 2001.
The Swedish Information Technology Companies Organization has accepted these standard agreements. The organization's previous agreements had a massive impact on day-to-day business in the Swedish IT sector. It is therefore reasonable to assume that these new agreements will be widely adopted on the Swedish market.
The agreements published by the Swedish IT Companies Organization are commonly considered as supplier-friendly. Larger customers often have their own general terms and conditions for purchasing IT services and products.
IT Project was drafted to create a standard agreement that reflects how IT projects are carried out. It is characteristic that the main focus is the provision of individual services specific to each customer. Delivering standard products or software is often of secondary importance.
IT Project is designed to apply when the supplier must develop a system for the customer. Other activities may be connected to this core obligation. The assignment implies that the supplier shall develop a system that fulfils the agreed requirements. The system shall be controlled by an acceptance inspection. The supplier is liable for the functionality of the system.
Other activities related to the system may include education, map-out needs and solutions, and further supply of products not directly included in the system.
In order to understand IT Project it is important to remember the distinction between the system, products and third-party products. The 'system' is defined as the result that shall be achieved by the supplier. 'Products' are the hardware and standard software products to be delivered by the supplier. 'Third-party' products are hardware and software products and tools, either specifically identified as third-party products in an appendix to the agreement or products that are not to be delivered by the supplier according to the agreement.
As regards liability for defects, the right to use and liability for infringment, these distinctions are decisive.
Structure of the agreement
One of the problems with project-oriented contracts is the difficulty in properly describing the scope of the services when signing the agreement. Therefore IT Project uses two different steps to specify the project and its result. When the agreement is signed the supplier's assignment is described in a service description. The service description is normally a short document that comprehensively describes what the supplier shall accomplish and how the assignment shall be carried out.
After the agreement is signed the supplier prepares two more documents. The first is the specification, which describes the system requirements to be realized and/or delivered by the supplier. The second is the project plan, which describes how the assignment shall be carried out, including a time schedule. The customer must then approve these documents. If the parties cannot reach an agreement as regards the specification and/or the project plan, the agreement may be terminated with immediate effect. The supplier is entitled to obtain compensation for the work already performed.
The customer is entitled to ask for either the service description or the project plan to be modified. The supplier may not refuse such a request for modification unless it can show reasonable cause (eg, the request implies a significant increase of the resources of the supplier).
The developed system must be approved by the customer at an acceptance inspection. The inspection shall, unless otherwise agreed, take place within a 30-day inspection period. It is essential for the customer to carry out the acceptance inspection. Otherwise the system is deemed approved when the 30-day inspection period elapses. A report shall be prepared on the acceptance inspection noting any complaints by the customer. The system is also deemed to be approved if the customer has made legitimate complaints but continues to use the system without the consent of the supplier.
The supplier is liable for defects in the system that (i) are documented in conjunction with the acceptance inspection or (ii) could not be detected during the inspection period but which are detected within 12 months of being approved. This is a very important aspect for the customer and demands that the customer focus on the acceptance testing, since failure to carry out a proper test will lead to waiver of the warranty for defects.
The supplier's liability for defects does not include defects in third-party products. The third-party products must, however, be clearly identified as third-party products in an appendix to the agreement between the parties in order to be excluded from the liability of the supplier. Otherwise the supplier may be liable for defects in such products.
The supplier's liability for defects in hardware and standard software to be delivered differ from its liability for defects in the system. According to IT Project defects in such products mean deviations from product descriptions used in marketing and generally applied norms for comparable products issued by the supplier.
The rectification of the defects shall take place through correction or, for software products not part of the system, through instructions for circumventing the defect. As a last resort the customer may grant the supplier a final grace period under which the supplier shall rectify the defects. If the defects are not rectified by the end of this period the customer is entitled to a reduction of the fee for work carried out. If the supplier has been negligent the customer is also entitled to damages subject to certain limitations. This is usually a fair way to solve the issue, but in some cases the customer may want more extensive warranties or a maintenance contract.
General Terms and Conditions Internet Project
Internet Project is intended to apply to development of the Internet, intranet, extranet or similar network services. It has a similar structure and terminology to IT Project.
Some of the most obvious differences between the two agreements include the following:
- Except for third-party products, IT Project does not include any references to products;
- The acceptance inspection period in Internet Project is 15 days (as opposed to 30 days in IT Project);
- The supplier is liable for defects in the service for six months following the actual approval day (as opposed to 12 months in IT Project);
- The customer may assign the licence to the Internet Project on condition that the service is used for the intended operations and agreed purposes. Third-party products may not be assigned. (According to IT Project the customer is prevented from assigning the licence to the system without the consent of the supplier.);
- Internet Project includes a more extensive rights clearance clause than IT Project; and
- The provisions regarding infringements of intellectual property differ slightly between Internet Project and IT Project.
The final wording for IT Service has not yet been decided - the material discussed below is from a draft. A final document will probably be published in Spring 2001.
IT Service is usually used when a supplier furnishes its customer with some specific competence for a project that the customer runs. In these cases liability for the project rests on the customer. The supplier's role is to provide the customer with employees or other resources (defined as 'services') necessary for the project. This standard agreement lacks provisions regarding acceptance inspection, products and third-party products. Likewise the provisions regarding defects are rather short in IT Service in comparison with the other two agreements.
IT Service is the least comprehensive of the three agreements, although this is intentional. IT Service shall be applied only when the supplier is providing the customer with resources and nothing else.
These three agreements, especially IT Project, will be frequently used in the Swedish IT sector, particularly in small and medium-sized businesses. Both customers and suppliers seem to agree that the structure of the agreements reflect how IT and internet projects are carried out in practice. All companies acting in Sweden, from both the supplier and the customer sides, will need to review the documents to analyze whether the terms and conditions are acceptable, or whether additional or different wording is required.
For further information on this topic please contact Agne Lindberg at Advokatfirman Delphi & Co by telephone (+46 8 677 54 00) or by fax (+46 8 20 18 84) or by e-mail ([email protected]).
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