Excerpts from this article were first published in the Dominion Post, 14 April 2008.
A case in which a major US company is suing software developer SAP claiming a "complete failure" of multi-million dollar system brings some timely reminders on technology contracts for New Zealand business.
Waste Management, Inc is suing SAP Americas Inc and its German parent for losses and punitive damages over a US$100 million enterprise resource planning (ERP) system that it claims has turned out to be "undeveloped, untested and defective".
The SAP system was supposed to help Waste Management, Inc, the US's largest rubbish company, manage tasks unique to its industry (such as waste disposal, recycling and logistics) without customisation and therefore save Waste Management, Inc money. However, the claims are that the SAP system was not designed for the US market, was untested in that market and, allegedly, did not work in that market.
While much of the detail of the law suit are yet to unfold and the degree to which they will be disclosed may depend on any agreement reached, there are some considerations that arise for New Zealand companies investing in ERP solutions.
In this country a typical agreement for an ERP solution will often include a clause that would be key to this law suit - providing that SAP is not liable for the loss of Waste Management, Inc's anticipated savings. However, a clause like this is not standard When parties negotiate exclusions of liability, they should be aware of their particular needs from the agreement.
In this case, Waste Management, Inc reportedly had great expectations of cost savings in its business from the ERP. If cost saving is one of the primary purposes for entering into an agreement, the customer should not agree, without a good deal of forethought, to exclude anticipated savings as a category of loss. Quite the opposite. The customer should push to ensure that any of these losses are clearly included as "direct" losses that the customer might suffer as a result of the product or the acts or omissions of the ICT company.
The same holds true for other categories of loss that ICT companies may seek to exclude from their liability, such as software restoration costs, downtime and loss of, or damage to, data. If a customer is engaging an ICT company for the purposes of data protection and storage, for example, it is not clear why that customer would agree to exclude loss of data as a category of loss under the agreement.
The message here is that there is no fixed approach to liability clauses. No matter how "boilerplate" a clause appears to be, a customer needs to focus on what is important to it before signing the contract. The purposes of entering into the agreement should be kept in mind when negotiating every part of the agreement, including the liability provisions.
The time spent getting it right upfront could again save the pain down the track should anything end up not going to plan.
Heidi Leslie is a senior associate with law firm Bell Gully, specialising in technology law.