Three gaps in tech contracts revealed by disputes you rarely see in court

Contracts to deliver tech solutions are commonly priced on either a time and materials basis or a fixed price. Fixed price arrangements can be attractive to customers because they appear to offer certainty. In practice, however, that certainty is rarely absolute. 

Most fixed price contracts include mechanisms that allow suppliers to charge additional fees, usually through a change request process. These arrangements rely on the parties agreeing to a defined scope of work, with the customer paying a fixed amount for that scope.  Where additional work is required outside that scope, the change request process is intended to address it.

Well-drafted contracts usually include a detailed scoping exercise before the fixed price is agreed, together with a change request process that requires both parties to agree whether proposed work is genuinely a ‘change’, and if so, the associated fees.

Despite these safeguards, disputes almost always turn on whether particular work falls inside or outside the agreed scope. That question is rarely straightforward. Scope ambiguity often arises not because the scope was poorly drafted, but because it is too difficult to anticipate every detail and contingency at the outset of a complex tech project.

Even with careful scoping, technical input and detailed drafting, additional work is often required to deliver certain outcomes. That is part of the commercial risk a supplier accepts under a fixed price contract. Problems arise when the cost of that unforeseen work begins to outweigh the value of the contract. At that point, the relationship can quickly deteriorate, with both parties able to argue, often plausibly, that the work is either included in the fixed fee or subject to additional charges.

Whether or not it is expressly addressed in the contract, user experience (UX) is often a key deliverable for customers. UX describes the overall experience of using and navigating a software interface, including how intuitive and seamless it feels, not just how it looks.

The importance of UX can be illustrated by the difference between achieving the same outcome in one click instead of three. One feels intuitive and seamless; the other feels clunky and inefficient. Both technically achieve the same result, but one delivers a far better user experience. Delivering that improved experience can require additional design and development effort. 

UX raises questions about how an outcome is delivered, rather than what outcome is delivered. If UX expectations are not clearly articulated in the contract, a customer may have limited ability to insist on a more refined experience without triggering the change request process.

Given its amorphous nature, UX can be difficult to capture in contractual terms and is often overlooked. In many cases, UX requirements are not included as separate deliverables at all, or only partially described. This can result in customers receiving what they asked for, but not in the way they expected.

If UX is important to the end product, it should be reflected in the contractual terms as express deliverables. During the scoping phase, customers should not only consider about what requirements need to be delivered, but how those requirements should be experienced by end users. 

In many cases, the contract remains on foot and can only be terminated if one of the parties breaches and repudiates the contract, or if both parties agree to bring it to an end. The former exposes both parties to significant risk to either sue or be sued, while the latter can be difficult to achieve because the relationship has become acrimonious. 

In these cases, what often happens is that the parties will continue to work together, at least for a time, until the project becomes unviable. Inevitably, one of the parties will have to pull the trigger and sue, or the parties will have to try and negotiate a mutual exit.

Litigation is rarely an attractive option. Unlike patent disputes, where protecting your market share can justify the substantial legal costs, the value of these types of contracts and the damages at stake often do not outweigh the time, cost and uncertainty of court proceedings.

There are also practical considerations. These contracts typically relate to projects to implement or upgrade systems, and disputes often arise mid-project. Commencing legal proceedings can delay those projects, divert funds and tie up key personnel, while a final court resolution may be years away and success is not guaranteed. 

This reality highlights the importance of robust contracts with clear scopes, sensible risk allocation and effective safeguards. It also points to a common gap: many technology contracts lack a meaningful mechanism to resolve scope related disputes quickly. 

One option is expert determination, where an independent and appropriately qualified expert determines discrete technical issues. This can provide a faster and more practical path to resolving disagreements during a project.

When disputes are inevitable, the ability to resolve them quickly and pragmatically can be just as important as the terms of the contract itself. Dispute resolution lawyers are usually engaged once a project has already gone off the rails. However, parties can benefit from involving us earlier, during the contract negotiation stage, to help identify risks and reduce the likelihood or impact of disputes before they arise.