Legal Briefing No. 3

Number 3

28 May 1993

GOVERNMENT INFORMATION
TECHNOLOGY CONDITIONS (GITC)

It has been estimated that Australian public sector
agencies purchase approximately 40% of all Information
Technology (IT) goods and services sold in Australia.
The Commonwealth public sector purchases approximately
half of this. However, despite the size of the public
sector market and the vast number of agencies involved,
until recently there had been very little co-operation
between the agencies in terms of sharing information
or utilising standard contract conditions.

Background to the GITC

In 1989 the Commonwealth and the States decided to jointly
produce standard contract conditions for use in a range
of transactions in the IT procurement area.

The Government Information Technology Conditions Working
Party, comprising the Commonwealth, all the States and
Territories, the Brisbane City Council and several State
statutory authorities, was set up to do this work.

The two Commonwealth 'founding' members of the working
party were the Attorney-General's Department and the
Department of Administrative Services. The former provided
a full-time lawyer to draft the conditions and provide
legal advice. At a later date the former Department of
Industry, Technology and Commerce attended meetings to
provide an industry development perspective.

The working party began on contract conditions for hardware
acquisition and installation, hardware maintenance, and
software licence and support. Because the members of
the working party were almost exclusively from central
contracting areas, they decided that the conditions would
be drafted in a form which was suitable for the government
IT contracts set up by those areas. In the Commonwealth
these arrangements are known as Common-Use Contracts
('CUCs'). In the IT area these are the 'PE' series of
contractual arrangements. In addition to the relevant
sets of conditions, an umbrella agreement, called the
Head Agreement Provisions was also prepared. It regulates
how the CUC is conducted between the central contract
authority and the supplier.

The first three sets of conditions: hardware acquisition
and installation; hardware maintenance; and software
licence and support, together with the accompanying Head
Agreement Provisions, were launched for immediate use
on 13 June 1991.

Stand-alone Conditions

In the Commonwealth there are many IT contracts which
do not arise under the CUC system. Where an agency requires
an IT product or service which is not available under
a PE contract, a separate contract needs to be negotiated.
The Legal Practice has prepared 'stand-alone' sets of
conditions which can be used in such circumstances. The
GITC Software Licence is the most commonly used stand-alone
set of conditions.

After the first three sets of conditions were launched,
work began almost immediately on two new sets of conditions:
the Systems Integration ('SI') Conditions and the IT
Consultancy Services ('ITCS') Conditions. Priority was
given to the SI Conditions because the Commonwealth was
in the process of setting up its Systems Integrations
Panel and a set of conditions was needed for contracts
being placed with that panel. The SI Conditions and the
ITCS Conditions, both of which were produced in a 'stand-alone'
form, were launched for use on 9 October 1992.

Consulting Process

The GITC preparation process was a long one There were
many complex issues to resolve and there were many parties
involved. The working party held extensive consultations
with the IT industry and this consultation process proved
extremely valuable for both government and industry representatives.
Each acquired a much greater understanding of the other's
position. Several hundred amendments, many on major issues,
were made to the conditions as a result of the consultations.
While there was broad consensus on most issues, agreement
was not reached on the issue of liability (see below).

The activity of the working party is continuing, although
in a much reduced manner, now that conditions which satisfy
the most urgent needs of the members exist. Conditions
covering.software development projects are still planned
for production by the working party.

The GITC do not cover all transactions in the IT area.
For example, there are no conditions covering leasing
of hardware, and none covering the major 'outsourcing'arrangements.
This is partly because of the extensive work required
to produce each set of standard conditions. Unless there
is very strong demand for conditions, the work is simply
too time-consuming and expensive to undertake. It is
also impossible to use standard conditions in some transactions.
For example, in major outsourcing projects, the requirements
of the parties vary enormously from project to project.
However, the Legal Practice does have other precedents
for use in many IT transactions and the GITC can of course
be drawn on where their standard clauses are appropriate.

Using the GITC

Where the GITC are used as the contractual basis for
CUCs, it is not possible to negotiate changes to these
conditions. However, the conditions do allow matters
not dealt with in the 'base' conditions, and which require
agreement between the parties, to be set out as additional
conditions. This should be done as part of the purchase
order (together with a call-up of the base conditions,
for example, PE44; PE50). The additional conditions may
not, however, override the base conditions (for example,
on the liability regime under the contract).

Outside of a CUC situation, the stand-alone conditions
should be used. The conditions have been drafted to try
to cover as many matters as possible that can reasonably
be dealt with in a standard manner. However, if the parties,
for whatever reason, feel that the standard conditions
should be modified to suit their particular requirements,
or that additional conditions should be added, then there
is no difficulty. But it is wise for a purchaser to think
carefully before agreeing to any amendments proposed
by a supplier. Legal advice should be sought if the amendments
are more than minor ones. After extensive consultation
with the industry, the working party took the view that
the standard conditions provided reasonable protection
for the government purchaser, without imposing unduly
onerous obligations on the supplier, so unless clauses
are not actually relevant to the particular circumstances,
no major changes would usually be required.

GITC SI Conditions

The GITC SI Conditions are by far the longest and most
complex set of conditions produced by the working party;
the Conditions reflect the complexity of major IT system
acquisition.

The SI Conditions are designed to cover all aspects
of a project of this kind : acquisition of hardware and
software; software development; project management; data
migration; security for performance; and system integration,
testing and acceptance. The Conditions also provide a
mechanism for accessing the CUCs. Whether the CUCs are
accessed or not determines the ultimate legal structure
of the arrangement between the government purchaser and
the systems integrator. On that issue alone careful thought
by the customer, and legal advice, is essential.

Extensive negotiations will usually be required in
projects of the kind contemplated by the SI Conditions,
particularly about the content of the Schedules. The
SI Conditions can be modified if required (for example,
to delete the software development conditions if no software
development is to proceed). Legal advice on modifications
to these conditions should be sought.

The SI Conditions contains 18 Schedules. The Schedules
are essentially of two kinds: those which must be completed
by the customer before the contract is signed, and those
which must be understood by the customer before the contract
is signed. Not all the Schedules may be necessary: this
matter should be discussed with your legal adviser.

The Schedules which must be completed by the customer,
for example, the "Customer's Functional Specifications" and
the Project and Implementation Plans to name by two of
these, require an enormous amount of work on the customer's
part, and the time taken to prepare, or finalise these
should not be underestimated. Your legal adviser can
provide guidance on the preparation of these documents
but, of necessity, the bulk of the preparation work must
fall on the customer's project team who are more familiar
with the technical and other details of the system acquisition.

A copy of the SI conditions should always be included
in the Request For Tender (rather than just saying 'the
GITC SI Conditions will be applicable'). This ensures
that all parties are clearly aware of the basis on which
the contractual arrangements are to proceed.

Liability

The issue of liability proved one of the most intractable
in discussions with the IT industry. This is not unusual.
Liability is always a difficult issue in both public
and private sector IT contract negotiations. In the private
sector, most purchasers do not have any negotiating strength
at all vis-a-vis the suppliers. In these circumstances
the issue is resolved quickly in favour of the supplier's
preferred position. However, the Commonwealth, which
is the largest purchaser of IT products and services
in Australia, is potentially in a very strong negotiating
position, and its aim is naturally similar to that of
the suppliers when negotiating on this issue: to protect
itself against loss. This position has been strengthened
by the increased competition among IT suppliers both
internationally and domestically and a growing acceptance
among them that it is reasonable for them to carry the
risks for those areas within their control

The working party maintained that it was undesirable
to include, in a set of standard conditions, a clause
which allowed a supplier to limit its liability to the
customer in all circumstances. The IT Industry, on the
other hand, wanted to include a condition in every case
which would 'cap' their potential liability to no more
than the value of the contract.

The position eventually reached was that a GITC 'capping
clause' was drafted which was to be used if agreed between
the parties; that is, on a case-by-case basis. The clause
may be modified, but government purchasers should seek
advice from the Legal Practice on this complex issue
before committing to a particular position on liability.
The clause was not actually included in the first three
sets of Conditions, or the ITCS Conditions but was provided
as a separate clause. The clause is included in the GITC
SI Conditions.

Cabinet Decision

The issue of liability under systems integration and
software development contracts was considered by the
Federal Cabinet in February 1992. The IT industry made
it known to Prime Minister Keating that it was unhappy
with the position adopted by the working party and reiterated
its views on its own position. Cabinet did not accept
the industry's position. It decided that:

  • liability under systems integration and software
    development contracts should be negotiated on a case-by-case
    basis;
  • agencies should do a risk assessment in each case
    to determine the level of risk under the proposed contract;
    and
  • if appropriate, the supplier's liability could be
    limited as agreed between the parties.

The capping clause of the SI Conditions provides a basis
for negotiations on this issue. The liability regime
under each IT CUC was unaffected by the cabinet decision
(that is, the issue of liability is not open to negotiation
once the Department of Administrative Services has determined
the liability regime for a particular CUC).

ISSN 1448-4803 (Print)
ISSN 2204-6283 (Online)

The material in this briefing is provided
for general information only and should not be relied
upon for the purpose of a particular matter. Please
contact the Legal Practice before any action or decision
is taken on the basis of any of the material in this
briefing.

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