OGC Guidance: ICT Contracts
Partnerships UK, the OGC and Intellect UK have published the new “Negotiating Guidance
for the OGC ICT Services Model Agreement.”
The main issues that that the Guidance focuses on are supply chain rights; due diligence;
authority termination for convenience and limits of liability and indemnity. This
article examines each of these points in some detail and the implications of them for the procuring authority.
Supply Chain Rights - The Guidance provides a number of optional
supply chain rights provisions which dependent upon the circumstances may be relevant.
These include the Authority right to withhold or delay consent in certain situations;
flow down provisions; the use of Direct Agreements; Authority Consent requirements
for termination of sub-contracts; the Authority’s right to require a sub-contract
termination in certain circumstances and the Authority’s right to use existing Authority
sub-contracts that are more favourable than those negotiated by the contractor.
It should however be borne in mind that the inclusion of the provisions should be
considered with reference to the project specifics in order to avoid delay due to
greater negotiation and added costs in the private sector accepting all the added
risks when not appropriate.
As such procuring authorities should ensure when negotiating that critical services
are not put at risk by supply chain failures; the contracts only pass down those
provisions that are appropriate to the sub-contractors role in delivering the services
and the continued provision from a critical sub-contractor is protected even if
there are problems with the contractor to maintain service delivery.
Due Diligence - The Guidance confirms that due diligence provisions
are essential as they place a clear responsibility on the contractor to ensure that
the site and system is understood and fit for those services. The contractor is
therefore liable for any further work needed which was not identified. This position
requires the Authority to support and assist the contractor in carrying out the
due diligence and table sufficient time. In recognition of the fact that this is
not always the case the Guidance provides the option of a price varying mechanism
to address certain due diligence risks.
Authority Termination for Convenience – Authority rights to terminate
for convenience are set around the principle need to protect the public purse in
the event of a change in Government or policy. The Guidance recognises the importance
of this provision given the pending General Election, but also the disproportionate
impact that this could have on a contractor, particularly in lager more complex
projects where they were seeking to recover costs over a number of years.
The Guidance highlights the need for the Authority in negotiating any such voluntary
termination provisions to be mindful of the impact and sensitivity of this issue
for the contractor although in reality such termination is ordinarily only a last
resort. In addition the Authority may wish to consider the relative benefits of
setting an initial period when the termination for convenience provisions could
not be invoked, thus reducing the risk on the contractor and in turn the premium
that the contractor will charge to include taking on such risk.
Limits of Liability & Indemnity – The Guidance confirms that
these provisions should set out an allocation of risk and a cap on the extent of
that risk for each party on a case by case basis. The Guidance clarifies that commercial
organisations should only be expected to have levels of liability that are proportionate
to the risks and potential financial returns of the project. The Guidance recommends
that Authority’s lead negotiations on these provisions with a realistic idea of
the limits of liability. If the liability is not proportionate to the risks this
may reduce value for money by way of increased premiums set by the contractor to
take account of the added risks. The Guidance clarifies that only liabilities that
can not be limited by law should remain uncapped; all risks should be assessed on
a case by case basis and the Authority should ensure that risks flow down correctly
into any sub-contracts. Finally the Guidance clarifies that an indemnity in respect
of IT infringements should be used in every case irrespective of circumstance.
For procuring authorities there may be the temptation to try to push as much risk
as possible onto the contractor, however in reality this will only lead to long
drawn out and difficult negotiations and an price that no longer reflects value
for money as the contractor will add a price to take on any additional risk and
particularly those risks that they are not best placed to manage.
In conclusion procuring authorities need to ensure that they fully understand the
services that they are procuring and the specifics of the case, allow adequate time
for due diligence and are realistic and commercial in their negotiations to avoid
added time and costs of seeking to pass too much risk to the private sector.
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For More Information Contact:
Tarmina Dent
TPP Law Limited
53 Great Suffolk Street
London SE1 ODB
t 020 7620 0888
f 020 7620 0778
e info@tpplaw.co.uk
Email: Tarmina
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