If you're supplying IT managed services, software or SaaS licensing, hardware or tech products, you probably rely on your online standard terms and conditions, a master services agreement, product orders or another kind of client service agreement. But here's the problem: many of these contracts contain generic template clauses or cobbled-together conditions from various sources. These can often be outdated, unsuitable, unclear and contain unnecessary legal risk.

At SLB Legal, our business contract lawyers have helped numerous IT service suppliers and customers review, draft, and negotiate a wide range of IT and tech-related contracts.

Here are three of the most common contract mistakes and pitfalls that IT service providers and tech suppliers should avoid.

1. Including unlawful and unfair contract terms

Yes, the Australian Consumer Law can and does apply when you sell your IT services, software, hardware, and solutions to business customers.   

Many master service agreements and IT contracts, for example, are made with small business customers who would be considered ‘consumers' under the Australian Consumer Law.

We have found that by using online templates or terms taken from various sources, IT suppliers and businesses unknowingly include clauses in their contracts that could be unenforceable or even illegal under Australian Consumer Law.

For IT suppliers, there are two key points to consider when creating standard customer terms and agreements for small businesses and individual consumers:

1. You must not attempt to contract out of or limit any of the consumer guarantees; and
2. Your standard service agreement or product supply agreement must not include terms that would be considered unfair contract terms under the unfair contract terms legislation.

Breaches of the Australian Consumer Law are serious. Not only can they render your terms and conditions and service agreements unenforceable, but they can also result in penalties of millions of dollars.

However, despite the Australian Consumer Law requirements and possible financial penalties, when our contract law lawyers review IT service agreements or tech product contracts, we often find the following issues:

• Terms and conditions that attempt to exclude or limit the non-excludable consumer guarantees;
• Inclusion of one-sided indemnity and liability clauses that go beyond protecting a business's legitimate interests; and
• Including early termination fees that are penalties rather than genuine estimates of loss for early cancellation.

Do you have a set of online terms that you created or that have not been reviewed in the last 12 months? Then it is a good idea to have your standard terms reviewed by a commercial contract lawyer familiar with both the Australian Consumer Law and IT or tech-related service and product supply agreements.

2. Overpromising on security or service delivery

There is no denying that service levels and data security are important to customers of IT service suppliers and tech products.  That's why the terms and conditions must be clear about what is included and excluded from the supplier's obligations.

Often, our business contract lawyers find that the service level agreements and other promises made in IT service agreements or tech products contracts overpromise what can and will be delivered. For example, we see suppliers take on 100% responsibility or liability for system uptime and restoration, protection of data security or delivery failures, without any obligations on the customer's part or a price point to match the risk level.

Over-promising or agreeing to service levels and security protections that are not practical or possible in IT or tech service or product delivery and IT environments is dangerous. 

No system is immune to downtime or cyber threats. Overpromising is likely to result in under delivering, which:

• Leaves a supplier open to legal risk and liabilities that are not covered by the supplier's insurance;
• Increases the likelihood of customer disputes damaging your relationships, reputation and pocket; and
• Results in requirements to pay out service level rebates or damages for breach of contract.

Balance is key. A contracts law lawyer with experience in IT and tech services, as well as product and service agreements, should help you outline reasonable service levels and clear product scope requirements, while also limiting liability for issues that are outside your control or which are practically unachievable.

3. Failing to define scope and deliverables clearly

Vague or poorly defined scopes are a recipe for disputes and scope creep. Every agreement, whether an IT service agreement, master service agreement, or standard online tech product terms and conditions, should clearly outline the scope of the services or products being supplied.

This is exactly what is being delivered as part of the service or product supply and what is included for the price. In other words, who is doing what, when and for what price?

We often see contracts that:

• Don't state what's included or excluded in the service or product supply;
• Fail to specify response, resolution or delivery timeframes clearly or at all; and
• Have no set or clear deliverables, milestones or acceptance criteria to define completion or when payment is due.

Clarity and detail are essential. When service and product delivery and scope are not clearly defined, disputes can quickly arise. Scope creep can also occur. Both these often impact your business income and damage your reputation and customer relationships.

If your IT service or tech product descriptions are not crystal clear, you are putting your business at risk.  Our tips are to:

• Use clear and plain English drafting;
• Avoid legalese and tech jargon; and
• Ensure that the service and product scope, as well as the deliverables, accurately reflect your true capabilities.

For example, if you're offering tiers of IT support, clearly list what each tier includes and, if necessary, specify any exclusions.

Some last thoughts

Using outdated, DIY or one-size-fits-all contracts might seem cheaper or easier, but they may not protect your business when things go wrong. The cost to your business for contract disputes in court will likely go into the hundreds of thousands and beyond. Plus, financial penalties for contract terms that breach the law, such as the Australian Consumer Law, can be millions.

If you haven't reviewed your contracts in a while, or you're using DIY agreements or templates you found online, now's the time to get the help of a business contracts lawyer.

If you need help reviewing, updating or drafting your IT supply or tech supply contracts? Contact SLB Legal today.

Disclaimer: The content in this article is not advice of any kind and is provided for general information and interest purposes only. You should always obtain independent legal or other professional advice, based on your own circumstances. 

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