Chapter 25 - IT Contract Formation

25.8.18 IT warranties

The IT contract should require the supplier to warrant that, as applicable to the procurement, all equipment, software, systems installed and services meet the contractual requirements. Suppliers generally prefer to disclaim all implied warranties of merchantability and fitness for purpose in favor of specific repair or replace warranties that give little or no recourse to agencies. In order to protect the agency, the contract should either reinstate the implied warranties or avoid the supplier's implied warranty disclaimers by devising a format that exchanges supplier disclaimers for specific express warranties. For instance, include language such as "Should such product not perform as warranted, the supplier will be responsible for fixing and repairing the product and if the supplier fails to do so, the agency has the right to receive a credit or equitable relief from the supplier, etc." All express and implied warranties should be clearly stated in the contract.

The contract should include a stated warranty period that begins after acceptance of the product and prior to the commencement of paid-for maintenance/support. During the warranty period the supplier is required to fix problems and provide some level of support at no additional cost to the agency. Warranty periods vary in length. They are frequently twelve months, although they may be as short as three months. Each VITA contract template includes warranty language adapted for the particular procurement type. After the warranty period expires, agencies commonly receive ongoing service through a maintenance agreement. Here is a sample warranty clause:

"For a period of ______ months from Agency's acceptance of the completed Software/Service/Solution (the "Warranty Period"), Supplier represents and warrants that such Software/Service/Solution will conform to all agreed-upon requirements. If, during that period, Agency notifies Supplier that the Software/Service/Solution does not conform to agreed-upon requirements, then Supplier promptly shall correct such nonconformities at no charge to Agency. If Supplier fails to correct any problem, programming error or bug reported during the Warranty Period within thirty days after receipt of notice, Agency may contract for such work to be done by any third party and Supplier shall reimburse Agency for the reasonable cost of such work."

Most agencies will want far more extensive warranties than merely a warranty that the product will conform to all agreed-upon requirements, and they will want warranties that last beyond the "warranty period". This is true especially in contracts in which the supplier prominently states that it makes no warranties other than those expressly set forth in the agreement. An agency that purchases a product or licenses software should also obtain a warranty from the supplier or licensor that the technology will not infringe on the rights of any third party. In addition to warranties that the product and all fixes and enhancements will conform to agreed-upon requirements and will not infringe the rights of any third party, an agency might require express warranties from the supplier that ensure:

• The product and all enhancements and new versions will contain no known defects.

• Supplier has the right to enter into the agreement and to perform its obligations under the agreement.

• The agreement is its legal, valid and binding obligation.

• Neither supplier nor its employees have been or are the subject, directly or indirectly, of any governmental order, investigation or action of any kind, including without limitation any order or action to revoke or deny any export privileges, and supplier will notify agency immediately in the event supplier or any of its employees become subject to any such order, investigation or action.

• Supplier's software, services or products shall not infringe on any third party's intellectual property rights, including, but not limited to patent, trademark, copyright or trade secret.

• Supplier is under no obligation or restriction, nor will it assume any such obligation or restriction, which would in any way interfere or be inconsistent with, or present a conflict of interest concerning, the services which are the subject of the agreement.

• Supplier's performance will not breach or conflict with any prior obligation of supplier to any other party, including any obligation to keep confidential any information acquired by supplier before the date of the agreement.

• Unless approved in advance by agency, no information supplier discloses to agency in providing the services that are the subject matter of the agreement will be confidential to supplier or any third party.

• The supplier, if a licensor, has the right to grant a license to the software free and clear of any liens and encumbrances.

• The supplier is not currently the subject of any litigation or pending claim that would materially affect the supplier's ability to perform.

• The fees and hourly rates set forth in Exhibit/Schedule are the best rates supplier offers to any of its customers.

• The software and all enhancements and new versions will contain no known computer virus or other "contaminants," including any codes or instructions that may be used to access, modify, delete, damage or disable agency's computer system, which shall include, but not be limited to, security or expiration codes.

• Licensor expressly waives and disclaims any right or remedy it may have at law or in equity to unilaterally de-install, disable or repossess the Software should Licensee fail to perform any of its obligations under this Agreement.

• In no event shall Licensor have the right to purposefully or accidentally electronically repossess the Software using "self-help" devices. For purposes of this Agreement, "repossess" shall include, but not be limited to, electronic lock-outs or booby traps.

When the supplier incorporates third party software into the software it is licensing or selling, the agency may want to include that the supplier must obtain comparable warranties from such third parties and shall assign such warranties to the agency. The supplier should also commit to cooperate with the agency in the enforcement of any such warranties. What about the term or survival of these warranties? While the warranty regarding the conformity of the software to the agreed-upon requirements may have a fixed term, for example, of twelve months, the agency may want the warranty against infringement to last indefinitely.

IT contracts may define levels of product errors and deal with each level in a different manner. For example, the contract might define a "fatal error" as one that results in the inability of a system to perform a vital business function of the agency (as further defined in the agreement). The contract might provide, for example, that if the agency discovers a fatal error within six months, then the supplier will handle the error in the same manner as it would handle infringement. In other words, the supplier would modify or replace the product, offer some workaround, or terminate the license and pay the agency the depreciated book value of the software. The agreement might provide that the licensor or supplier will use its best efforts to fix any error other than a fatal error.