LOGiNJUS® English Issue 1/2016

Legal optimization of IT project contracts

It is a wise saying in the area of logistics:

Hardly elsewhere in logistics so much money is wasted as in the logistic IT. Complex logistic IT projects are frequently technically very challenging which makes great demands on the technical implementation and supervision, in particular however also on the specific IT contract design of the IT contractor.

Case example:

A manufacturer of household aids wants to modernize the IT for his warehouse which is run by a logistician and to bring it up to scratch. An SAP-based warehouse management system (WMS) is available, however it has to be individualized expensively that is to say adapted and configured. A corresponding contract is concluded with an IT service provider according to his submitted draft contract and after he had contributed to establish the IT specification sheet.
The result after 9 months: Nothing works. Functions which were too slow before, such as for example the IT-entry of mixed pallets to be transferred to stock, do not function at all any more now or even slower than before. Of course, out of the planned 400.000,00 € there have become meanwhile 900.000,00 €, with no end in sight.

The IT service provider consistently refers to lack of co-operation and to the fact that numerous requirements had been set only during the process which had caused immense additional expenses and problems during the execution justifying the price increase. Of course, the IT service provider disclaims any responsibility. At the same time he does not forget to point out that at least another 350.000,00 € are required to reach a reasonably working logistic IT.

The overflow of the costs and the delay can be avoided by concrete measures.

No effective stock management without IT

Typical sources of error:

1. We simply get started!

The renewal of IT is frequently not approached goal-oriented and often also without a precise project plan. The consequence is a regular “scattering” without precise schedules which frequently leads to delays by permanently new customizing of the software and thus to considerable cost increases. It is even worse to let the IT service provider in charge write a specification sheet on his own responsibility – this generally turns out to be almost a license to print money for him.

Therefore it is advisable to establish a precise project plan with a sub-division in the different stages (e. g. start, analysis, conception, preparation and test phase, implementation and continuous optimization) of the IT project together with the IT service provider in order to reach the goal of the logistic IT project, namely to integrate a complex IT system into a logistic system and thus to optimize this logistic system.

Already in the booster phase the client should bring in an IT consultant who is independent from the IT service provider if the company itself lacks the corresponding IT competence.

2. The contract provided by the IT service provider will have its accuracy!

IT service provider contracts frequently contain standard flowers of speech which are neither custom-tailored nor do the contractual arrangements show a system how the objectives of the project can be reached. Such a negative example, which unfortunately is frequently found is:

“The software X facilitates the operating of a stock management which enables the warehouse logistic usual functions such as for example the inventory management.”

Nearly just as frequently one encounters solely general descriptions as for the activity of the service provider, such as for example “contributes”, “acts on” or similar wording from which a resilient result for which the IT service provider has to answer is not recognizable.

3. The quality of the software will probably be alright!

Absolutely important: The IT contract has to picture a system and thereby consider and realize the following objectives in detail:

  1. Secure, robust IT solutions on the selected quality level for secure, robust logistics
  2. Sustainability = Flexibility by change consistency
  3. Cost effectiveness = at best conditions

4. IT technical jargon in the contract is common practice!

IT contracts, especially when such ones are provided by the IT service provider, often contain IT terms which a client can definitely not classify. Contracts should however not only be understandable for the parties involved, but they should be drafted in such a way that someone neutral who is judging them – that is to say a judge – understands what it is all about.

In this context negative examples are also abbreviations with which the client is not always acquainted, e. g. SOA (= service oriented architecture), BPM (= business process management), Saas-Modell (= software as a service – model), ASP (= application service provider) etc.

Our consequential practice hints for IT clients:

  1. Set up an unambiguous assignment of duties by individual contract, in particular concerning requirements and quality of the software, prices, change requirements (change request), obligations to co-operate as well as liability.
  2. Subdivide the project chronologically in segments and link fixed budget amounts with these sections which should be defined by achievable development targets with exactly defined contribution of the client. Budget exceedings should be communicated mutually immediately.
    Important in this connection: Describe the objective to be achieved – whose realization the IT service provider ensures – in understandable words. Example: “Checking in of a mixed pallet with up to 15 different positions by a specifically trained worker within a minute”.
  3. If the high requested IT competences are not available within the client company – also when experienced skilled personnel is missing for the essential individual production steps and quality parameter – authorize an experienced independent IT consultant who is translating for you the IT technical jargon in an understandable way and helps you to establish the requirements (specification sheet) as well as to examine the system specifications prepared by the IT service provider.
  4. Avoid the “IT technical jargon” frequently found in IT contracts. Describe everything in a commercially and legally understandable language.

Remark: Since we have made the experience that logistic IT is that area of logistics in which on a regular basis the worst, most expensive and for the IT client most disadvantageous contracts are common, we have developed the check and design system LOGiIT ©. Furthermore by our contract design programme we optimize existing contract drafts or create new contracts with optimized solutions taking into consideration IT and logistic specific problems. In this respect we could already reach considerable measurable quantifiable achievements for IT clients in a multitude of projects.

As always you run no risk in case of our assignment: A pre-check is at no charge, if we cannot ensure that we can identify significant improvements.

Write to us or give us a call. We will gladly inform you.
Phone +49 261 / 13 49 66 0 or mail to info@gimmler-gruppe.com (Subject: LOGiIT)

Responsible lawyer: Mrs Marei-Katharina Raming

Marei-Katharina Raming

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