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Sky's decision to seek £709 million in
damages from IT services contractor EDS for allegedly acting
"dishonestly" when pitching for an IT services contract will be
hard to prove in court, a lawyer has warned.
Conor Ward, a partner at law firm Lovells,
told Computerworld UK that "the burden of proof is very high when
you’re trying to prove deceit and fraud," which made court action
rare.
Ward said Sky's decision to allege fraud was
the only way to claim more than the £30 million liability cap
contained in the ill-fated £48m contract that Sky and EDS signed in
2000.
He said suppliers sometimes used the liability
cap in their contracts to escape from a deal that was not going
well and was unprofitable, but said it was equally hard for
suppliers to get a fair deal when negotiating on contracts.
“It is a very thin line between selling your
abilities properly when you’re bidding for a contract and pushing
your luck on what you can actually deliver – because you may not
know what you’re going to have to deliver.”
Ward said when contracts ran into trouble
litigation was normally avoided by renegotiating a deal at the
earliest possible stage.
Sky is seeking more than 14 times the value of
the £48 million contract it signed with EDS, accusing it of
dishonestly represented the resources it had available for the
project. EDS has denied the claims and said in opening statements
yesterday it took a risk in trying to deliver a system for which
the specifications had not yet been formulated.
With EDS's pitch for the contract lying at the
heart of the dispute, Jimmy Desai, a partner at Blake Lapthorn
Tarlo Lyons, said most contracts explicitly stated that sales
pitches could not be construed as an official statement of the
supplier’s capabilities.
“It’s called an Entire Agreement Clause,” he
said. “This specifies that unless it is in the contract,
representations made before signing it don’t count as legally
binding.”
But Desai said that claiming fraud enabled a
customer suing a supplier to circumvent such a clause. “It’s about
the spirit of honesty in what you say in your sales pitch as a
supplier. You’ve got to make representations that are fair and
honest. If you’ve been totally dishonest, you can’t rely on
protection from the contract.”
Both Desai and Ward advised that customers
ensure their contracts cover exactly the requirements they need,
and that suppliers also set out clearly what they are able to
achieve. This needed to be explicit in the contract, they said,
since sales pitches were often based only on partial project
information, they said.
“Companies usually bring in the lawyers early
to check that all representations made by the supplier are actually
reflected in the contract," said Desai.
“But the customer does not always know what it
wants, and a project’s scope can escalate as it goes on. EDS’s
claim is a standard counter-claim from a supplier.”
Jimmy Desai is a partner
in Blake Lapthorn, and specialises in IT, IP, corporate,
commercial and outsourcing law issues.
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