AIIA: uncapped liability clause makes firms lie

The South Australian government's ICT procurement policy of demanding uncapped liability for government contracts effectively forces firms to lie in their tenders, according to the Australian Information Industry Association (AIIA).On Wednesday, the ICT Council for South Australia called for the state government to put an end to its demands that every ICT contract is awarded with uncapped liability.

The South Australian government's ICT procurement policy of demanding uncapped liability for government contracts effectively forces firms to lie in their tenders, according to the Australian Information Industry Association (AIIA).

On Wednesday, the ICT Council for South Australia called for the state government to put an end to its demands that every ICT contract is awarded with uncapped liability. In response, a government source said that although all tenders request uncapped liability, caps can be negotiated.

The AIIA's chief executive officer Rob Durie told ZDNet Australia on Friday that by initially demanding an uncapped tender and then negotiating a cap afterwards means firms are forced to lie when initially responding to calls for tender.

"Once a company that says 'we will accept uncapped' gets through the door they immediately start negotiating a cap," said Durie. "They are being put in a position where they are almost forced to lie about what they are prepared to accept -- because generally companies are not prepared to accept uncapped liability".

Durie explained that when the SA government requests tenders for a proposed contract it demands that companies applying accept the contract will include uncapped liability -- meaning the contractor assumes all risks. This cluse, according to Durie, makes applying for a tender expensive and "unacceptable to most suppliers".

"If you are a small Australian company doing an AU$2 million or AU$3 million contract then you may not be able to get insurance and if you can get insurance it is expensive -- and might be worth more than the company," said Durie. "For the multinationals generally speaking their policy generally is never to accept uncapped liability".

Telling the truth a disadvantage?
Admitting that you are unlikely to accept unlimited liability from the start puts you at an immediate disadvantage, Durie said.

"Companies that are upfront and say they will not accept uncapped liability are often put in a position where they have to put in a tender that does not comply with the conditions -- so they may well be ruled out," he said.

This point was reinforced by a source inside the SA government yesterday, who requested anonymity. The source told ZDNet Australia: "If you have two companies bidding with one saying I will accept uncapped liability and one saying I won't then that is part of the analysis of who you pick to do business with".

Despite the requirements of the tender process, Durie said that once a contract is awarded the next step for most companies is to negotiate a cap.

"When the contract is won, the government and that company will then spend months negotiating and generally they will end up with some form of capping. It will have taken a lot of time and legal expense, "said Durie. "Our argument is why not solve that up front?"

To make the system fairer for both small and large companies, Durie said the government should be upfront about what it is actually willing and unwilling to accept: "If you are not going to demand uncapped liability, then don't demand it. Go to the market with what you are prepared to accept. Take it out of negotiation".

"That will reduce government costs, industry costs and you will be able to move much more quickly from contract to the implementation of IT, which is really what this is all about," said Durie.

"It is not about contracts or IT, it is about delivering government services," he added.

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