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There is no questioning the importance of a robust and dependable IT system in today's marketplace. Service Providers do a great job of extolling the virtues of the latest and greatest system enhancements and what they can do for your business. And for the first month a new system may solve many problems and significantly enhance how you do business. But then the system crashes. Data has been lost and the system outage is severely affecting your ability to service your clients. What do you do?
First point of call will be the Service Provider who provided you with the system. You explain the problem to them and their response is that new software updates are required to remedy the problem, and once more it will take a week to get the system back up and running. You are next informed that there will also be an associated cost with providing the software updates and labour rates to install the software. The benefits of installing the new system is diminishing rapidly.
So how do you avoid incurring unexpected costs and delays in the future in relation to the ongoing maintenance and support of your new system? Enter into a system support agreement.
System support agreements play an integral part in ensuring that a system performs to anticipated standards throughout the lifetime of the system. Except for low value services that are to be provided for low risk systems, support agreements should almost uniformly be entered into when acquiring a system from a third party.
In this article we highlight the top 10 issues that should be addressed when drafting or negotiating a system support agreement.
System Support Agreements – What are they?
System support agreements relate to the support and maintenance of the system software and/or hardware. Services that are generally included in such agreements are:
- support personnel
- helpdesk facilities
- preventative maintenance
- spare parts
- fault fixing
- software upgrades and updates
- disaster recovery
- training
- documentation
While a template support agreement can be a useful starting point for key terms, as with any template, tailoring is invariably going to be required to meet the requirements of a particular arrangement. One method of ensuring a suitable support agreement is to negotiate the support agreement at the same time as the system acquisition agreement, as that is when the parties will be focused on expected ongoing performance rather than having attention focused on carrying out implementation or other matters.
Defining the Services
Given the level of technical jargon involved in IT contracts, the definition of the services to be provided can be difficult to capture. However, an accurate description of the services is essential, as any alleged failure to perform will be referred back to the definition in some manner. The description should be clear enough for someone without an IT background to easily identify the nature and scope of the services. In larger scale contracts it may be appropriate to refer to a list of the services in a more detailed schedule.
Some key factors to consider in any definition of services are:
- definition of a "system defect" and what services will be provided where a system defect is identified
- availability of bug fixes, revisions and new versions of software
- availability of spare parts for the system
Service Levels
Service levels prescribe the standards that the Service Provider must meet in providing the services. Service levels that may be included in a support agreement include:
- helpdesk response times
- system defect fix times
- escalation obligations
You may also wish to consider consequences for the Service Provider if service levels are not met. These could include service credits or rebates that you could apply to reduce the amount payable to the Service Provider. Alternatively, consistently exceeding minimum service levels could be rewarded with service level incentive payments.
Service Provider Personnel
You should always insist on inserting certain minimum standards of competence for the Service Provider's personnel. In some circumstance you may also wish to have the right to remove the Service Provider personnel without cause. The specialised nature of some systems may even necessitate a specific person with certain expertise to be named in the agreement who will be on call to fix particular system problems.
Fees
An accurate description of the various components of the fees payable and the total fees is extremely important. You should be aware of the extent of the services that are included in the amount payable, and whether there are additional services that may be required not covered by any fixed fees. Of particular importance are fees payable for additional licences that may be required. There may also be limits on the amount of time provided by the Service Provider's personnel in attending to call out requests.
Termination
The value of any system purchased is reliant on the support provided by the Service Provider. Accordingly you should always consider the term of the support agreement and the extent of the rights of the Service Provider to terminate.
Escrow Arrangement
There may be situations where you may not automatically have access to the source code that underpins the system software. Where the relationship with the Service Provider terminates, you will want to have access to the source code so you can support the system independently or provide it to another third party who can support the system on your behalf.
A common method to secure access to source code is to require it to be stored via an escrow arrangement. In this situation the source code would be provided to an independent third party who will only release the source code under certain pre agreed conditions. Such conditions would include the system support agreement terminating for instance. This affords a degree of protection in ensuring that source code relating to your existing system will be available if the relationship with the Service Provider breaks down.
Ownership and Licensing
You should ensure that you have the same rights for upgrades that may be needed for the system as you have for the initial software provided under the system acquisition agreement. This should prevent the Service Provider from charging additional licence fees for upgrades that may be required.
Warranties
As with other general commercial contracts, warranties are very important. You need to ensure appropriate warranties provided by the Service Provider back up the services to be provided. These will vary on a case by case basis, but at the very least should include the Service Provider warranting that:
- it has the expertise to discharge its obligations
- the services will be performed with due care and skill, diligence
- it will not introduce any viruses or other forms of malicious code
Tie-In with the System Acquisition Agreement
Because of the interrelationship between system acquisition agreements and system support agreements you should consider whether the system acquisition agreement should be conditional on finalisation of the system support agreement.
The commencement dates of the agreements are also important. The support agreement should ideally tie in with the warranty period in the system acquisition agreement.
Liability
This is often one of the most contentious areas of any agreement. The Service Provider will try and limit its liability to the greatest possible extent. Always remember that any such limitation of liability simply redistributes risk back to you. Such limitations should be minimised as much as possible.
Conclusion
The issues highlighted above are by no means an exhaustive list of issues that may need to be considered in drafting a support agreement. That said, the above issues should make for an appropriate starting point when considering the purchase of a new IT system.
Key Contacts
Karen Ngan +64-9-977-5080 karen.ngan@simpsongrierson.com
Don Holborow +64-4-924-3423 don.holborow@simpsongrierson.com
Jonty Vavasour +64-4-924-3475 jonty.vavasour@simpsongrierson.com
Note: The information provided in this article is intended to provide general information only. This information is not intended to constitute expert or professional advice and should not be relied upon as such. Specialist legal advice should always be sought for your particular circumstances.
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