Dr. Aftab Maroof & Mr.

Naveed Iqbal
FAST-NU, Islamabad
(Lecture Slides Week # 10)
 What is Agreement?
 Every promise / set of promises forming the consideration for each
other is an agreement. Not bound by the law.
 What is Contract?
 A contract is simply an agreement between two or more persons (the
parties to the contract) that can be enforced in a court of law.
▪ The parties involved may be legal persons or natural persons.
 Promise or set of promises, the performance of which the law will
recognize as a duty and for the breach of which the law provides a
remedy.
 There is no specific form for a contract. What is essential is:
▪ All the parties must intend to make a contract.
▪ All the parties must be competent to make a contract.
▪ There must be a ‘consideration’, that is, each party must be receiving
something and providing something.

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 Questions regarding Contract?
 Is there a contract?
 What are its terms?
 Is the contract enforceable by the court?
 Has there been a breach of the contract?
 What damages do you award?
 Elements of a Contract?
 Offer:
▪ Expression of a present intention to create a binding agreement.
 Acceptance:
▪ Agreement with offer by any manner reasonable under the circumstances;
must mirror the offer.
 Consideration:
▪ Legal “detriment” to both sides that is the reason for the agreement.

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 Terms of the Contract?
 Common Law:
▪ Agreement between the parties must supply the details
sufficient to allow enforcement.
 Determine terms to which parties agreed
 Terms implied by law
▪ Warranties
▪ Express warranties
▪ Implied warranty of merchantability (only sales of goods by
merchant)
▪ Implied warranty of fitness for a particular purpose (only sales of
goods)
▪ Disclaimer of warranties

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 Computer Contracts:
 Computer contracts present special problems due to unique nature of
computer technology
▪ Intangible Property
▪ Intellectual Property Rights / Laws
▪ Failure of Systems - not meeting customer requirements
▪ Failure of Systems - not coping with organizational growth
 Threat?
▪ Damages claimed by the customer
 A mistake in the choice of equipment or software coupled with a poor
contract can be disastrous for a purchasing company.
 The company making the acquisition will need to decide:
▪ How the contract can protect it if the equipment or software fails to
perform as it should?
▪ How it should be maintained and how its staff should be trained?
▪ What to do if the software or hardware infringes a third party’s copyright
or patent?

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 Computer Contracts (Contd.):
 Sample Case 1:
▪ Brownton Ltd vs. Edward Moore Inbucon Ltd (1985)
▪ Commodity broker sought advice for installation of a computer system
▪ Consultant recommended a system and the same was installed
▪ The system never worked properly, was inadequate for broker’s needs and
ultimately scrapped
▪ Consultant charged £66,000 and cost of system was £75,000
▪ Broker claimed damages of £250,000 for breach of contract and difference in
price for a new system
▪ Demand for new system was £1,100,000
▪ Settlement of £300,000 was reached
▪ Contract Importance?

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 Computer Contracts (Contd.):
 Sample Case 2:
▪ Ministry of Information vs. Faujisoft (2001)
▪ Rs 1.1 million project
▪ MIS, 4-modules (Personnel, Inventory, Accounts, News Archiving)
▪ No formal requirements / specifications were provided by the Ministry
▪ Faujisoft itself studies and proposed a system
▪ Contract was developed by Faujisoft and the same got approved without
consultation of the Ministry of Law
▪ Faujisoft got money in advance (initial stages)
▪ Rs 0.550 million bank guarantee was there (6-months validity)
▪ Oracle 8 was purchased (licensed) from Ora-Tech, 2 DBA’s trained
▪ Software delivered was full of bugs, not meeting user requirements and thus
could not get implemented
▪ As per contract / terms & conditions, nothing could be claimed
▪ Poor Contract -> how much loss of public money?

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 Computer Contracts (Contd.):
 Contract Assessment:
▪ What if the software contains bugs?
▪ What if the computer / software goes down in the middle of the wages
run?
▪ What if the client copies the programs and distributes the copies?
▪ What if the program run too slowly to be of any practical use?
▪ What if the computer becomes obsolete and the manufacturer washes his
hands of it?

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 Computer Contracts (Contd.):
 General Terms and Conditions of a Contract:
1. Scope / Requirements Specification
2. Contract Management
3. Price
4. Payment Conditions
5. Delivery and Acceptance
6. Intellectual Property Rights
7. Information, Facilities and Materials to be Provided by the Client
8. Conditions relating to Staff
9. Change Control

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 Computer Contracts (Contd.):
 General Terms and Conditions of a Contract:
10. Warranty
11. Liability for Loss or Damage
12. Confidentiality
13. Indemnity
14. Termination
15. Force Majeure
16. Notices
17. Arbitration
18. Applicable Law

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 Fixed Price Contracts for Bespoke Systems:
 Bespoke / Tailor-made Systems
 Parts of the Contract:
▪ Short Agreement
▪ Standard Terms & Conditions
▪ Schedules / Annexes
▪ Particular Requirements
 What to be supplied?
 When?
 What payments? When?
 Terms & Conditions for Bespoke System Contract:
▪ What is to be produced?

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 Fixed Price Contracts for Bespoke Systems:
 Terms & Conditions for Bespoke System Contract (Contd.):
▪ What is to be delivered?
▪ Source Code, Documentation, Reference Manuals, Supporting Tools, User
Training, Maintenance Staff Training, Test Data and Test Results
▪ Ownership of Rights / IP Rights
▪ Confidentiality
▪ Payment Terms
▪ Calculating Payments for Delays and Changes
▪ Penalty Clauses
▪ Delays caused by the supplier
▪ Suppliers very reluctant to accept such terms
▪ Such clauses -> higher bid price
▪ Obligations of the Client

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 Fixed Price Contracts for Bespoke Systems:
 Terms & Conditions for Bespoke System Contract (Contd.):
▪ Standards and Methods of Working
▪ Quality Standards, Agile Processes
▪ Progress Meetings
▪ Project Managers
▪ Acceptance Procedure
▪ Criteria for Judgment of Successful Completion
▪ Very Critical Part of the Contract
▪ Who should be present for tests?
▪ What if tests fail?
▪ Warranty and Maintenance
▪ Warranty: Free of charge bugs / error removal
▪ Maintenance: As per user requests
▪ Warranty α Higher Bid Price / Project Cost

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 Fixed Price Contracts for Bespoke Systems:
 Terms & Conditions for Bespoke System Contract (Contd.):
▪ Inflation
▪ Indemnity
▪ Termination of the Contract
▪ Payment by the user for work already carried out by the supplier
▪ Compensation for redeployment of staff
▪ Arbitration
▪ Applicable Law
▪ Where supplier and client have offices in different legal jurisdictions
▪ Performance of the contract in different jurisdiction

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 Consultancy and Contract Hire:
 Contract hire is an agreement in which the supplier agrees to supply the
customer with the services of a certain number of staff at agreed daily or
hourly charge rates.
 Very simple sort of contracts
 Closely related are freelance agreements
 Consultancy is an up-market version of contract hire
▪ Experts called by organizations for assessment and advice
▪ Mostly fixed price contracts
 Consultancy Contract – Major Aspects:
▪ Confidentiality
▪ Terms of Reference
▪ Liability
▪ Loss due to Consultants’ advice
 Who has control over final version? (Draft version by consultant)

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 ‘Cost Plus’ Contracts:
 Also called ‘Time and Materials’ Contract
 Supplier agrees to undertake the development of the software in a fixed
price contract manner but final payment is made on the basis of actual costs
incurred with labor charges as contract hire
 Outsourcing Contracts:
 Sometimes known as facilities management
 Logic / Reason: Competencies of supplier
 Major points to be addressed:
▪ How is performance to be monitored and managed?
▪ What if performance is unsatisfactory?
▪ Which assets / staff being transferred?
▪ Contingency planning and disaster recovery
▪ IP rights, Duration of the agreement, and Termination provisions

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 License Agreements:
 Desktop license / single copy
 Server license / multiple copies per server
 Site license / multiple copies on a specific location
 Web Hosting Contracts:
 Collocation vs. Hosting
 Search Engine Registration
 Online Promotion
 Service Levels:
▪ Server Response Time and Throughput Capacity
▪ Server Uptime
▪ System Redundancy
▪ User Support
 Security

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