Key Trends for Public Sector IT Contracts: the view from the UK Government IT Summit
15 October 2007
This article was first published in the September 2007 issue
of IT Law Today.
The annual UK Government IT Summit was held on 14th and 15th May
at the Victoria Park Plaza Hotel, London. The Summit provides an
annual opportunity for key stake holders and suppliers in public
sector IT to come together and discuss their experiences. This
year’s theme, “Turning the Tide”, reflected on both the challenges
and the achievements of public sector IT projects. Programmes
discussed ranged from the forthcoming ID card programme to the
congestion charge system. As such, it provided a useful strategic
overview for both IT professionals and IT lawyers alike.
The move towards partnering
The key theme which emerged from the Summit was the trend
towards partnering. For those involved in public sector IT, this
came as no surprise; partnering has been an emerging trend for some
time. It is now widely accepted in the public sector that IT
procurements work best where the contract documentation has been
designed to build and support the development of a long term,
mutually beneficial relationship. Several case studies were given
of partnering in practice. Regrettably, however, there was
relatively little discussion of the latest contract mechanics being
designed to promote partnering. This was disappointing since, as
most IT lawyers will be aware, this is one of the most innovative
areas in contract drafting.
Contract incentivisation
From my own experience, public sector customers are increasingly
aware of the importance of contract partnering mechanisms. As a
result, most lawyers working on public sector IT projects spend a
significant amount of time working with their clients to design
contract mechanisms which both support and incentivise
partnering. Whilst all commercial lawyers will be familiar
with customer-supplier governance provisions, many public sector
customers are now also looking for mechanisms to promote partnering
between their differing suppliers. This recognizes the reality that
most public sector customers operate in a multi-supplier
environment. Consequently, many customers now require their
suppliers, as a condition in their contracts, to sign up to a
supplier co-operation agreement. A co-operation agreement sets out
the partnering principles and procedures by which the customer
requires its various suppliers to abide. The customer will either
be a party to this supplier co-operation agreement – or will retain
third party rights to enforce. The overall aim is to try to achieve
a more “joined up” approach for the customer and to minimise the
risks associated with multiple contract interfaces.
Pricing provisions can also be designed to incentivise
partnering. The more usual provisions are gain share arrangements
which allow suppliers to share in any cost savings delivered by the
supplier. However, some customers also choose to include a
“partnering” element to their balance score card mechanisms. This
allows, for a more qualitative assessment (and reward or
punishment) of partnerial activity.
Shared IP and Shared Services
The second theme which emerged from the Summit was the move
towards shared IP. As Richard Granger, Director General of NHS IT
and John Suffolk, UK Government CIO, both noted, whilst Britain is
world class in developing bespoke IT systems, the future lies in
increasing re-use of IP and commoditisation. This is having – and
will continue to have - significant implications for IP contract
provisions.
Another theme identified by Richard Granger was the rise of
shared services amongst public sector customers. This builds on the
earlier mentioned themes of partnering and sharing IP. As before,
this development will have implications for contract drafting. With
shared services, commercial lawyers will have to pay particular
attention not only to scoping their customer’s requirements, but
also agreeing contract mechanisms for managing those customers.
For example, public sector customers signing up to a framework
agreement may wish to agree their own overarching agreement which
sets out customers’ rights to procure under the framework, amend
framework service catalogues, manage framework disputes and manage
framework rights of termination. These rights will, naturally, need
to be reflected in the framework agreement with the suppliers so
that they are, in turn, clear how their contract will be managed.
Other issues to be addressed may include provisions regarding
channelling of claims, IP licences, confidentiality and
cross-default provisions.
The role of contract management
Finally, whilst the Summit acknowledged that some public sector
IT procurements had hit the headlines for the wrong reasons, it was
useful in highlighting the many unsung successes. London’s
congestion charging system being the stand-out example.
The Summit was useful in reminding us all that large public
sector IT projects have lengthy lifecycles and that best
procurement and contract practice has developed – and will continue
to develop - over time. Whatever, the developments, however, it is
important to remember that contract design is only one factor in
achieving a successful IT procurement. Equally, if not more
important, is the execution of the contract management.
For further information, please contact Belinda Doshi.