Going public with extra care

SINGAPORE--Winning government contracts may lend an air of prestige for IT vendors, but they should be mindful of the intricacies involved in such deals to avoid unnecessary disputes, say industry and legal experts.

The government is an important market in Asia that vendors cannot ignore, noted Eugene Wee, senior analyst for IT services at IDC Asia-Pacific. "Government spending in IT Services is one of the most appealing in the Asia-Pacific, excluding Japan, market…totaling more than US$4.5 billion in 2005. This represents some 15.3 percent of the total IT services market [in the region]," Wee said.

"The appeal of winning government contracts often lies in [such deals] being great case studies for vendors to bring to the market; after all, if the government is using [the services of a] company, then [that vendor] must be the best," he added.

However, this also means that IT vendors typically have to "compromise on high margins in order to win these 'model' contracts", said Wee.

Mark Lim, director and head of intellectual property at law firm Tan Peng Chin LLC, also noted that the bargaining terms of government agencies are generally higher. What this means is that the vendor may not be able to impose standard terms in the contract, especially those relating to liabilities. For example, a standard contract usually has provisions limiting compensation for consequential damages to the amount awarded for the IT project.

Just last week, a local news daily reported that the Central Provident Fund (CPF) Board filed a civil suit against IT giant IBM, over the deployment of a software system contracted to the vendor in 2001. CPF is a nationwide social security savings program for working Singapore citizens and Permanent Residents.

The Board claims that IBM was unable to deliver according to contractual agreements despite extensions to the project deadline. The contract was eventually terminated in 2004. IBM, in its defense and counterclaim against CPF Board, says the government agency repeatedly changed the system specifications, over and above the original requirements for an upgrade.

In response to e-mail queries from ZDNet Asia last week, an IBM spokesperson noted that the company was unable to comment "as legal action is in progress". CPF, and Singapore's ICT industry regulator the Infocomm Development Authority of Singapore (IDA), also declined comment.

Lawyers ZDNet Asia contacted noted that while such disputes are typical, it is rare for public sector agencies to take legal action against their suppliers, or vice versa.

"IT litigation is a very technical and expensive process often requiring a lot of time and resources, and should be undertaken only if you're sure you have a good case against the other party," said Rajesh Sreenivasan, a partner at local law firm Rajah & Tann. To resolve differences or disputes, the parties would more commonly use "internal dispute resolution" or arbitration, he noted.

Avoiding legal pitfalls
"In an IT project, there're many ways that [disputes] can arise, such as the vendor not meeting timelines or critical milestones, or when they fail to deliver products or services to the agreed technical specifications," Sreenivasan explained. "On the part of the customer, [disputes are typically the result of] not properly spelling out the actual specifications when contracting with the vendor--the lack of internal benchmarking to ascertain the true IT needs of the organization--as well as non-payment."

According to industry and legal experts, how easily a dispute is resolved depends on how thorough the parties establish the scoping process, where the roles and requirements of both parties are spelt out clearly.

Chong Yoke Sin, CEO of NCS Group, said: "A vendor and customer will have developed a scope of work and service level agreements so that both parties understand what is to be delivered, [and] within the given time frame." NCS is a Singapore-based systems integrator.

While a framework helps avoid project delays and failure to deliver, vendors must make an assessment of their own capabilities in accordance to what the project requires before committing themselves, Chong said.

Rajah & Tann's Sreenivasan noted that consideration should also be set aside for changes in the contract, and whether the terms are fair for both parties. This means putting in place a change control process, which "allows parties to vary the scope of work and payment requirements based on future needs".

Ken Chia, a partner at law firm Baker and McKenzie.Wong & Leow, said:"If there is some win-win element…where the supplier has some upside for doing the extra work but at the same time cannot charge a ransom price because the customer is locked into [the vendor's service] already, then usually the parties will generally be able to work something out [even in the event of a dispute]."

In addition, Sreenivasan pointed out, even when legal proceedings have kicked in, as in the case between CPF and IBM, there is still the possibility of settling the issue out of court.