Software Contracts and Liability
over the planning, management and operation of certain functions to
another organization (the supplier). This deﬁnition covers many common
situations – most of us, for example, choose to give the responsibility for
supplying our home with electricity to a company that specializes in this,
rather than buying our own generator and doing it ourselves; in other words,
we outsource the supply of electricity.
The past 25 years have seen a rapid increase in outsourcing in the UK. This
was led by the Civil Service. Civil Service salaries were low in comparison
with salaries in the IT industry so that the Civil Service had great difﬁculty in
retaining competent IT staff. This difﬁculty was reﬂected in the poor quality
of government information systems. Outsourcing IT provision to specialist
companies provided a means of overcoming this problem while, at the same
time, allowing the government to reduce the number of civil servants, a polit-
ical objective to which it was committed.
The logic behind outsourcing is that a company that specializes in a parti-
cular area, be it IT or ofﬁce cleaning, is likely to be able to make a better job
of running services than an organization whose main area of expertise is
elsewhere. Twenty-ﬁve years ago, companies would employ their own staff
to develop software, run the staff canteen, clean the ofﬁces, carry out mar-
ket research, and so on. Nowadays, they are likely to outsource all these
operations to specialist companies so that they can concentrate on their core
business, that is, the business that is the main source of their revenue.
IT outsourcing contracts are inherently complex and depend very much
on individual circumstances. It is not appropriate to go into detail here about
such contracts but the following is a list of just some of the points that need to
how is performance to be monitored and managed;
what happens if performance is unsatisfactory;
which assets are being transferred;
contingency planning and disaster recovery;
intellectual property rights in software developed during the contract;
duration of the agreement and termination provisions.
The ﬁrst two items above are key element in IT outsourcing and are often
treated as a separate agreement known as a service level agreement.
When customers buy some software, they are buying a copy of the software
together with the right to use it in certain ways. There are many different
types of restrictions that a licence agreement may place on the extent to
which a customer can use the software. Here are some examples: