A lossless summary of Frank Bott book, Professional Issues in IT, chapter 12 "Software Contract and Liability". Contents: 1. Contract 2. Fixed Price Contracts for Bespoke Systems 3. Consultancy and Contract Hire 4. Time and Materials 5. Outsourcing 6. License Agreements 7. Liability for Defective Software 8. Health and Safety

1. Software Contract and Liability
A lossless summary by
Mohamad Sani
1

2. Reference
Ch. 12
Software Contract and
Liability
Professional Issues in
Information
Technology
Frank Bott
ISBN 9781906124489
2005
BCS Learning & Development
Limited
2

3. Outline
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
a. Products
b. Deliverables
c. Rights Ownership
d. Confidentiality
e. Payment Terms
f. Payments for Delays &
Changes
g. Penalty Clauses
h. Client Obligations
i. Working Standards
j. Progress Meetings
k. Project Managers
l. Acceptance Procedure
m. Warranty and
Maintenance
n. Inflation
o. Indemnity
p. Termination
q. Arbitration
r. Applicable Law
3. Consultancy and
Contract Hire
a. Contract Hire
b. Consultancy
4. Time and Materials
5. Outsourcing
6. License Agreements
7. Liability for Defective
Software
8. Health and Safety
3

4. Contract
• A contract is an agreement between two or more
persons (the parties to the contract) that can be
enforced in a court of law.
– The parties may be legal or natural persons.
• No specific form
– In particular, in England and Wales need not be written
down.
• What is essential:
1. All the parties must intend to make a contract.
2. All the parties must be competent to make a contract.
• Old enough and sufficiently sound mind to understand what they
are doing
3. There must be a consideration.
• Each party must be receiving something and providing
something.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
4

5. Contract Law
• Largely based on common law.
• The existing contract law perfectly adequate to
handle contracts for the supply of computers,
software and associated services.
• However, the coming of the internet and e-
commerce has created a need for new provisions
to deal with such matters as:
– Electronic signatures
– Which county’s laws should govern transactions when
the parties to the transaction are in different countries?
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
5

6. Fixed Price Contracts For
Bespoke Systems
• Tailor-made or bespoke systems: an organization
buys a system configured specifically to meet its
needs.
• Typically consist of 3 parts:
1. Agreement
1. States who the parties are
2. Says anything that have been said or agreed before
3. Signed by the parties
2. Standard terms and conditions
3. Schedules or annexes
• Used on fairly large contracts
– Many small-scale projects are carried out satisfactory
using much simpler contracts, often no more than an
exchange of letters.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
6

7. What is to be produced
• Contract necessarily states what is to be
produced.
• Usually two level of reference:
– Standard terms and conditions refer to an annex
– The annex then refers to the requirement specification
in a separate document
*IMPORTANT: the reference to the requirement
specification identifies that document uniquely, normally
quoting a date and issue number.
• Contract should provide a procedure for
requirement specification changes, including:
– A method of calculating payment for the changes
– Variation of the level of anticipated performance
(optional)
– Variation of the method of acceptance testing
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
7

8. What is to be delivered
Non exhaustive list of possibilities:
1. Source code
2. Command files
For building the executable from the source
3. Documentation
Of the design and the code
4. Manuals
• Reference manuals
• Training manuals
• Operations manuals
5. Software tool to help maintaining the code
6. Training
• For user
• For client’s maintenance staff
7. Test data and test results
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
8

9. Rights Ownership
• Stating what legal rights are being passed from
the developer to the client is important.
• Ownership in physical items will usually
passed.
– E.g. books, documents, disks
• More than that, software is protectable by
intellectual rights:
– Copyright
– Design rights
– Confidentiality
– Trademarks
Contract should state who is to own these rights.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
9

10. Confidentiality
• The two parties may acquire confidential
information about each other when a bespoke
software is being developed.
– Client may have to pass its business operations
– Developer may not want the client to divulge to others
about its operations
• In this case, the contract should state the non-
disclosure agreement.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
10

11. Payment Terms
• The standard terms and conditions will specify
the payment conditions, e.g.:
Payment shall become due within 30 days of invoice issue
date. If payment is delayed by more than that, the company
shall have the right, at its discretion, to terminate the contract
or to apply a surcharge at an interest rate of 2% above the
bank base lending rate.
• In practice, such clauses are brought into effect
in extreme case, since using them is likely to
destroy the goodwill between developer and
client on which the success of the project
depends.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
11

12. Payment Terms
• An annex usually specifies a pattern of
payments, e.g.:
– An initial payment of 15% becomes due on signature
of the contract
– 65% at various stages during the development
– 25% on acceptance of the software
– The final 10% at the end of the warranty period
• Such pattern has advantages for the developer
in that it reduces:
– The financial risk
– Possible cash flow difficulties
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
12

13. Payment Terms
• If the client does not accept the stage payment
pattern, the developer is likely to demand a
premium to cover the increased risk and the
costs of financing the development.
• In negotiating the payment pattern,
– The developer will usually seek to have the stage
payments becoming due on fixed calendar dates.
– While the client will try to have them tied to the
achievement of specific project milestones.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
13

14. Payments for
Delays and Changes
• Frequently, progress of the development is
delayed because the client does not meet
obligations on time.
• The developer will be expected its best to
rearrange activities to avoid wasting effort, but it
is not always possible.
• Therefore, the contract should make provision
for payments to compensate for:
– The wasted effort when the client fails to meet its
obligation on time
– Extra work when changes are requested
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
14

15. Calculating Payments for
Delays and Changes
• The contract must specify the process these
extra payments are calculated.
• Typically, an annex will include daily charging
rates for each grade of staff employed on the
the contract.
• The amount of extra effort to be paid for will be
agreed at progress meetings.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
15

16. Penalty Clauses
• When delay caused by the developer.
• Normal mechanism: the sum payable to the
developer is reduced by a specified amount for
each week that acceptance of the product is
delayed, up to certain maximum.
– E.g. contract value $1 million. Penalty $5,000 per
week up to maximum $100,000
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
16

17. Penalty Clauses
• Delays in delivering software are common, it
might be expected software contract would
normally include such a penalty clause.
Paradoxically, such provision is rare because:
1. Developers are very reluctant to accept penalty
clauses. Anything stronger than the example quoted
above is likely to lead to reputable developers
refusing to bid.
2. If the contract is to include penalty clauses, the bid
price is likely to be increased by at least ½ the max
value of the penalty.
3. If the software is seriously late and penalties
approach their maximum, there is little incentive for
the developer to complete the work since they will
already have received in stage payments as much
as they are going to get.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
17

18. Penalty Clauses
• Regardless of penalty, every delay eats into
developer’s profit margin. As a result,
suppliers are strongly motivated to produce
the software on time and delay is usually the
result of genuine technical difficulties or
incompetence rather than lack of motivation.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
18

19. Client Obligations
• Non-exhaustive list of possibilities:
Client Provides:
1. Documentation of the client’s activities or
environment in which the system will run
2. Access to appropriate members of staff
3. Machine facilities for development and testing
4. Accommodation, telephone and secretarial facilities
for the company’s staff when working on the client’s
premises
5. Data communications facilities to the site
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
19

20. Client Obligations
• The Standard Terms and Conditions normally
state a list of specific obligations.
– The dates at which they will be required is given in
an annex.
– Also state that failure to meet these obligations may
render the client liable for delay payments.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
20

21. Working Standards
• The developer is likely to have company
standards or methods of working. More
sophisticated clients may have their own
procedures and may require that these be
adhered to.
• The contract must specify which is to apply.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
21

22. Progress Meetings
• Regular progress meetings are essential to the
successful completion of a fixed price contract.
• It is advisable that the Standard Terms and
Conditions require them to be held.
• The minutes of meetings, duly approved and
signed, should have contractual significance in
that they constitute evidence that milestones
have been reached and the other agreements
that might be raised.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
22

23. Project Managers
• Each party needs to know who, of the other
party’s staff, has day-to-day responsibility for
the work and what the limits of that person’s
authority are.
• The Standard Terms and Conditions should
require each party to nominate, in writing, a
project manager.
– The project managers must have at least the
authority necessary to fulfill the obligations that the
contract places on them.
• It is important that the limits of their financial
authority are explicitly stated.
– The extend to which they can authorize changes to
the cost of the contract.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
23

24. Acceptance Procedure
• Acceptance procedure are critical in any fixed
price contract.
– They provide the criteria by which successful
completion of the contract is judged.
• The client should provide a fixed set of
acceptance tests and expected results.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
24

25. Acceptance Procedure
• Extra tests cannot be added once the test set
has been handed over.
– To ensure that the acceptance procedure can be
completed in reasonable time
• The contract should also includes:
– Who shall be present when the tests are carried out
– What happens if the tests are not completed
successfully
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
25

26. Warranty and Maintenance
• Once the product has been accepted, it is
common to offer a warranty period, typically 90
days.
• Any errors found within this period will be
corrected free of charge.
– This clause is subject to negotiation.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
26

27. Warranty and Maintenance
• After the warranty period, maintenance can be
available on request.
• Since such maintenance is likely to involve
enhancement rather than simply faults
correction:
– The resources required are unpredictable, the client
usually does not know what enhancements will be
required in, say, two years’ time.
– A fixed price will not appropriate.
– Usually be charged on a time and materials basis.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
27

28. Inflation
• In lengthy projects, the developer will wish to
ensure protection against the effects of
unpredictable inflation.
• It is customary to include a clause which allows
charges to be increased in accordance with the
rise in costs.
• The clause should state how often (e.g. once or
twice a year) charges can be increased and
how the effect on the overall price is to be
calculated.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
28

29. Indemnity
• It could happen:
– As a result of the client’s instructions, the developer
led unwittingly to infringe the intellectual property
rights of a third party.
– The developer provides a system which infringes
such rights through carelessness or dishonesty, e.g.
using proprietary software as a component of the
system delivered.
• For this reason, advisable to include a clause
under which each party indemnifies the other
for liability arising from its own faults in this
respect.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
29

30. Termination of Contract
• There are many reasons to necessarily
terminate a contract before it has been
completed.
– It is not uncommon.
• It is essential that the contract make provision
for terminating the work in an amicable manner.
• Usually means that the developer is to be paid
for all the work carried out up to the point where
the contract is terminated, together with some
compensation for the time needed to redeploy
staff on other revenue earning work.
• The question of ownership of the work so far
carried out must also be addressed.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
30

31. Arbitration
• Court action is expensive. Contract often
contain a clause saying that, in the event of a
dispute that they cannot solve themselves, the
party agree to accept the decision of an
independent arbitrator.
• In computer-related contracts, it is usually
stated that the arbitrator is to be appointed
either by the President of the BCS or IEE.
– Both bodies maintain a lists of qualified arbitrators
• Usually state that if arbitration is required, it will
comply with the Arbitration Act 1996.
– This act lays down set of rules that cover many
eventualities.
– Reference to it avoids the need to spell these out in
detail.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
31

32. Applicable Law
Where the developer and the client in different
legal jurisdictions or performance of the contract
involves more than one jurisdiction, it is necessary
to state which laws the contract is to be
interpreted.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
32

33. Contract Hire
• Contract hire (body shopping): an arrangement
in which the developer agrees to supply the
client with a certain number of staff at agreed
daily or hourly charge rates.
• Client takes responsibility for managing the
staff.
• The contract is usually fairly simple.
– Payment is on the basis of a fixed rate for each day
worked.
– The rate depends on the experience and qualification.
• Ownership of intellectual property rights still
must be addressed.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
33

34. Consultancy
• Consultant: an expert who are called in by an
organization to assess some aspect of its
operations or its strategy and to make
proposals for improvements.
– The end product is usually a report or other document
• An up-market version of contract hire.
• Usually undertaken for a fixed price.
• The form of contract is very much simpler than
fixed price contract
– The value is small and neither side stands to lose a
great deal.
– When the consultant failed, not usually possible to
demonstrate unequivocally that a report fails.
• Client has to rely on the desire of the consultant to maintain
reputation. In practice, this usually sufficient.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
34

35. Consultancy
Important aspects of a consultancy contract:
1. Confidentiality
• Consultant would learn a lot about the companies and can
misuse this information for their own profit
2. Terms of reference
• As a result of their initial investigations, the consultants may
discover that they need to consider matters that were outside
their original terms of reference, but the client may be unwilling
to let it.
• Important that the contract refers explicitly to the terms of
reference of the consultancy team.
• In practice, this is the commonest source of disagreement
3. Liability
• Consultant will wish to limit their liability for any loss that the
client suffers as a result of following their advice.
• Client may not be happy with this. In some cases, they insist
on verifying that the consultant has professional liability
insurance.
4. Who has control over report
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
35

36. Time and Materials
• Time and materials (cost plus): the supplier
agrees to undertake the development in much
the same was as in a fixed price contract, but
payment is made on the basis of the costs
incurred.
– Labor charged in the same way as or contract hire.
• Developer is not committed to complete the
work.
– Though a maximum payment may be fixed beyond
which the project may be reviewed.
• Many fixed price contract challenges still occur:
– Ownership of rights, facilities provided by client,
progress monitoring arrangement.
– But some are don’t: delay payment, acceptance
testing.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
36

37. Time and Materials
• Why client should prefer time and materials
contract?
1. Often the work to be carried out is not sufficiently
well specified for any developer to offer a fixed
price.
• Part of the developer’s task will be to discover the
requirements.
2. Developer always loads a fixed contract with
contingency allowance
• If all goes well developer makes extra profit, as a reward for
risk taken.
• Time and materials contract makes this risk and the possibility
of extra profit (in the form of a lower cost) transferred to the
client.
3. Avoid risk of having to pay excessive sums to have
minor changes outside the specification.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
37

38. Outsourcing
• Outsourcing (facilities management):
commercial arrangement under which a
company (the client) hands over the planning,
management and operation of certain function
to another company (the developer).
• A company (the developer) that specializes in a
particular area is likely to make a better job
than an organization (the client) whose main
area of expertise is elsewhere.
• Rapid increase in the UK in the past 25 years.
– Led by the Civil Service.
• Great difficulty in retaining competent IT staff because civil
service salaries were low in comparison with in the IT industry
• Allowing gov’t to reduce the number of civil servants
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
38

39. Outsourcing
• IT outsourcing contracts are complex and
depend very much on individual circumstances.
• Some points that need to be addressed:
1. How is performance to be monitored and managed
2. What happens if performance is unsatisfactory
3. Which assets are being transferred
4. Staff transfers
5. Audit rights
6. Contingency plan and disaster recovery
7. Intellectual property rights
8. Duration of agreement
9. Termination provision
Number 1 and 2 are key elements in IT outsourcing and
are often treated as a separate agreement known as a
Service Level Agreement.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
39

40. License Agreements
There are many different types of license
agreement. A license may allow the licensee to:
• use one copy of the software on his computer
• run the the software on a server on his local
area network and for it to be used by up to
some agreed maximum number of users.
• run as many copies of the software on
computers at specified premises  site license.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
40

41. Important Concerns
in License Agreements
Several things that a software vendor may be
concerned:
• Making sure that it is not giving away any of its
own rights in the software.
• Limiting the extend the customer can use the
software.
– So that if the customer wants to use it more he must
pay an additional license fee.
• Ensuring a regular income from support
activities.
– E.g. annual maintenance charge, consultancy fee
• Ensuring as far as possible it will not be liable
for any defects in the software.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
41

42. Liability of Defective
Software
• Developer are very reluctant to give contractual
commitment.
– The Standard terms and conditions will contain a
clause that tries to limit the developer liability if the
software is defective.
– Most contracts will limit the extent of any liability
either to purchase price of the product or to some
fixed figure.
• The Unfair Contract Terms Act 1977 restricts
the extend to which clauses in contract limiting
liability.
• But, it is not possible to limit the damages
payable if a defect in the product causes death
or injury.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
42

43. Using Consumer Sale Law
• Consumer sale:
– buyer must be a private person
– Seller is acting in the course of a business
– The goods must be a type ordinarily supplied for
private use
• In consumer sale, the requirements of Sale of
Goods Act 1979 and Supply of Goods and
Services Act 1982 cannot be excluded.
– The most important requirement of the 1979 Act is
that goods sold must be fit for the purpose for which
such goods are commonly supplied.
• E.g. printer must be capable of printing reliably and clearly at
usable speed.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
43

44. Software in Goods Law?
• Problem: software is intangible, it may not
comes under the definition of “goods”.
– It is not clear whether Sale of Goods Act 1979 applies
to the sale of software.
– It is generally thought that it does apply to the sale of
retail software or software sold under wrapped
license.
– But it would not apply to bespoke software.
• Then it comes under the 1982 Act, which only requires that
“reasonable skill and care” has been used.
• The Unfair Contract Terms Act 1977 again
comes to the rescue.
– It allows liability to be limited or excluded only to the
extent that it is reasonable to do so.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
44

45. Health and Safety
• “It shall be the duty of every employer to
ensure, so far as is reasonably practicable, the
health, safety and welfare at work of all his
employees.”
(The Health and Safety Work Act 1974)
• Particular concern to software engineers:
Provision and maintenance of:
– safe plant
– safe systems of work
– such information, instruction, training and supervision
– safe working environment and adequate welfare
arrangements
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
45

46. Health and Safety
• The act also requires employers to ensure that
their activities do not risk the general public
health and safety.
• Failure to comply with the act is a criminal
offence.
1. Introduction
2. Fixed Price
Contracts for
Bespoke Systems
3. Consultancy and
Contract Hire
4. Time and
Materials
5. Outsourcing
6. License
Agreements
7. Liability for
Defective
Software
8. Health and
Safety
46