Equally, contracts can be simply too one-sided to be workable over the long-term. It used to be that the public sector set the high-water mark for over-blown and over-protective contracting practices. But I sense a greater degree of realism has crept into some aspects of public sector ICT contracting, especially as the Cabinet Office has moved more to platform-based procurement. Indeed, the G-Cloud store even accepts that providers can contract on their own terms and conditions.
Not that ICT providers were necessarily any better. Many implemented confusing and salami-sliced negotiation procedures that sent customer negotiation teams scurrying to different bits of the provider's organisation to negotiate different parts of the contract.
Some providers – although, admittedly, not all – have improved their negotiating practices and are now putting a lot more time and effort into understanding the key negotiating factors, and better assessment and mitigation of contracting risk. There's also more focus on the softer, emotional intelligence side of the ICT contract negotiation process, and how organisations should structure themselves in order to reach agreement on appropriate contract terms more quickly and with a better balance.
But this progress towards balance has not been mirrored among many large corporate purchasers of ICT. Nowhere is this more true than in the financial services sector, where large financial institutions appear to have an increased sense of their purchasing power and a desire to impose more burdensome terms on providers – even in areas where the previous market leader in complexity, the public sector, has relaxed its view. One suspects here the indirect effects of regulatory scrutiny and continuing demand to deliver shareholder value within the financial services sector.
Regretfully, a number of my colleagues in the legal profession are not doing all they could to moderate excessive demands and move towards a middle ground where sustainable long term relationships will better flourish. Which is better, a contract with a high or uncapped limitation on liability clause, or a contract structured to reduce the risk of loss in the first place?
In a business context, English law (as with other common law jurisdictions, such as the US), puts few constraints on what the parties agree in a contract. As a result, mutually agreed, balanced contracts remain the fundamental underpinning of the ICT supply chain. Yet again, in July this year, the UK Supreme Court reiterated that the job of a court in relation to a contract is not to impose terms but, instead, to determine what a reasonable person would make of the terms that the parties themselves have agreed.
And the approach for doing so is to start with what the contract says and then apply an objective test of what a reasonable businessperson would understand by its meaning. It is important to start with what the parties have actually written, rather than what they intended to write – because that constitutes their agreement. You can protest as much as you like that you intended to agree something else during the negotiation process, but the courts will give effect to what the contract says, not what you thought it was going to say.
The contract language needs to be read in accordance with common sense and not in a pedantic fashion. If there are two or more possible ways to read a provision, then it should be read in a manner that's most consistent with commercial common sense.
And if commercial common sense were able to prevail in the often heated world of contract negotiations, the ICT sector would be a better place for it – not least because the need for lawyers would reduce significantly! But on that score, I think my job's safe for the foreseeable future.