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This report is part of the Template Files for Web Projects bundle.

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Overview

Web Project Template Files: Compliance
Authors: Sonia Kay, Econsultancy and other expert contributors
Title: Contract for Web Services

About this Guide

Before you look at the sample contract provided, please read the following helpful guide…

Legal Contract FAQ - A primer for Clients on the essential aspects of legal contracts

Q: Why do I need a contract?
A: In fact - you will end up in a contract with your Developer whether you intend to or not. Contracts do not need to be in writing, nor do they need to be signed and so merely agreeing that the Developer will do some work for you will bring into existence a contract.

Q: If there is going to be a contract anyway - why should I have a “legal contract”
A: The answer is certainty. The vast majority of IT projects fail because of uncertainty; either uncertainty in the original specifications, uncertainty in the scope of the project, uncertainty in the time for completion and uncertainty as to the exact cost. Even when the web site is built there can be uncertainty in who owns the intellectual property in it and if things go wrong, you need be certain who is liable and for how much. Secondly, if you do not specify the contract to be used then there is a risk that you are contracting on the Developer’s standard conditions of sale - a contract which is going to be biased heavily in favour of the Developer. A formal contract and specification which sets out the scope of the project is invaluable in ensuring that the project meets your expectations, is delivered on time (or at least in a time frame you expect) and is within budget.

Q: What contracts are in the Econsultancy pack?
A: There are three: a contract for developing and supporting a web site, some standard terms and condition for the web site itself and a privacy policy for the web site. Any lawyer will tell you that there no such thing as one standard contract - in the same way that there is not just one spanner for a mechanic. These contracts have been provided as example contracts, but when developing your own contracts you should ensure that they reflect the commercial arrangements that you want. This is quite “specialist” work and you should consider getting professional help from a suitably qualified UK lawyer.

Q: How does the contract for developing and supporting a web site work?
A: The contract is modular; on the first page you write in the names of the parties and some of the headline commercial terms and refer on that page to a number of schedules which will describe the project. You should always include Schedule A which contains the main legal terms and conditions. That first page, the Cover Page, is also the page which you sign. Although you don’t need to sign a contract to make it enforceable - you can save yourself a lot of trouble later if you can point to the version of the contract which the parties agreed to with their signatures.

Q: What goes in the schedules?
A: The schedules will generally be written in collaboration with the Developer. Many of the schedules the Developer will need to create individually for your business anyway, for example, the functional specification, the storyboard (if you have one), the project plan and the description of the support services. For the reasons we discussed above, it is important that the schedules contain all the aspects of the project you are anticipating. The paragraph at the bottom of the Cover Page and clause 16.2 of the contract provides that if the feature or provision is not in the contract or schedule then it is not part of their scope of work.

Beware agreements to agree.
Q: Why?
A: They are generally only good for the Developer. An agreement to agree is unenforceable, as under English law you cannot force someone to agree in the future. If you leave schedules either incomplete or subject to further agreement then there is often no guarantee that you can get the things that you want in the schedule once the contract has been signed. Before the execution of the contract the Developer will be in sales mode, trying hard to get the contract, and will often describe you as partners with all the same goals. Once the contract is signed and work is underway, this partnership and goodwill may disappear, particularly if the Developer has taken on other clients who are competing for his/her time or if the project turns out to be much more time consuming than they anticipated - so eroding their profit margin.

Q: Invariably our projects change over time as the various parts of our business provide their input.
A: The basic principle is that you can always make a change to any part of the contract and schedules if it is with the agreement of all the parties. This contract provides that the change should be in writing (clause 3.1). Where you anticipate that there needs to be a change in the scope of the contract, clauses 3.1 to 3.3 provide a mechanism for you to ask the Developer to price the change before it goes ahead.

Q: What are intellectual property rights?
A: This question is really worth an FAQ of its own but essentially in this context there are several types of intellectual property: Patents - for inventions, Copyright - for text, pictures and software, Trademarks - for product and company names and Confidential Information. The basic rules to remember are:
(1)Generally and unless otherwise agreed, the person who creates the intellectual property owns it. If the Developer creates a bespoke site for you and you have no provisions in the contract about ownership of the intellectual property, then the Developer will own the intellectual property in the site. This can make things very difficult if you part company with the Developer and want to retain a successor developer.
(2)Intellectual property is like real property, you can both assign it and licence it. The parallel to real property is selling the freehold and granting a short lease for your apartment. As with real property assignments of intellectual property need to be in writing, signed, and should contain the words “assign with full title guarantee” to be fully effective (see clause 8.1). Ownership of patents must be registered, ownership of trademarks should be registered to make them most effective and ownership of copyright requires no registration or other formalities at all.
(3)If you think that the work to be developed might include an invention which can be patented then it is critical that details of the invention are kept confidential. A patent cannot be granted for inventions which are already in the public domain and so if the invention is disclosed before it is patented, then that will prevent a patent being obtained.
(4)A patent is essentially a monopoly over an invention and even if you do not consider obtaining a patent it is possible that the technology in the web site has already been patented by someone else. You can be liable for damages if you use someone else’s patent without their permission. Our contract (see clauses 7.3 and 10) makes this the Developer’s responsibility. You can learn more about patents and search a database of patents at http://www.ipo.gov.uk/patent.htm.
(5)A trademark is not a monopoly over use of the name or logo which is trademarked but it does help prevent other companies from using your company name or product name for their products. Similarly you may have inadvertently picked a company name or product name which has already been trademarked by someone else. The fact that you were able to pick your company name and get it on your certificate of incorporation does not mean that it is not someone else’s trademark, as registering companies and registering trademarks are separate systems. You can learn more about trademarks and search the UK and European trademark registers at http://www.ipo.gov.uk/patent.htm. Although our contract makes infringement of intellectual property a risk for the Developer, you will be responsible for any intellectual property in the material you provide (described as Client Content - and to be provided by you in Schedule D). See clauses 7.4 and 10.

Q: The budget is quite tight for this project and we are already at the limit of it with the improvements that the Developer is recommending.
A: One of the best controls for keeping projects on track is controlling the payment of money. There are a large number of different ways to approach this but one technique which is firmly in your favour is to ensure that some payments are not made until certain milestones are reached. These milestones, and the appropriate payments should be set out in Schedule E - Project Plan. When the Developer finishes a section of the project which is subject to a milestone then the contract provides (see clause 2) that that section of the project should be subject to acceptance testing. As currently drafted the Developer does the testing, provides all the results to you and you inform them of any errors. They then need to go back, fix the errors and retest. If they fail this process three times then that is considered to be a breach of the contract. Again there are a number of variants to this process you can consider, in particular, you may wish to do some of the testing yourself or at least provide or agree certain for test data to be used.

Q: What are the most important bits of the contract?
A: Assuming that the project is scoped and that there are no “agreements to agree” then the most important aspects are price, liability and intellectual property. We have dealt with price and intellectual property but liability is more important yet. The only way for companies to limit liability is to agree enforceable limits in a contract. Our starting point is at clause 11. This language is extremely fair to the Developer - you might want to start your negotiation with the Developer by leaving clauses 7.4, 11.1 and 11.2 out. English law provides that you cannot set limits of liability unreasonably low and hence the mechanism which provides that the limit cannot drop below £10,000. The contract provides that the limit is set to twice the Fees. A Developer may resist this but it is a good starting point for negotiation. As a rule of thumb, the limit should never be set to be below the Fees. As an alternative, you could let the liability be limited to a set amount. Other aspects to this part of the deal are the types of loss which are recoverable. Currently we have been fair to the Developer by permitting the exclusion of consequential loss or damage (see clause 11.1). You may think that this is too generous. Lastly, we have, as is usual, sought to ensure that the limits of liability do not limit the protection we receive and give in relation to third party intellectual property infringement (see clause 11.2 linked to clause 10.1).

Q: What are the other contracts which you have provided?
A: We have also included a sample User Agreement for a web site and a sample Privacy Policy. These will be contracts between you and the users of the web site. It is important to ensure that these contracts are actually incorporated - and so the link to them should be clear on the principal pages of the web site and when the user goes through a registration process they should “click to accept” these terms and conditions. You should keep a record of all the “click to accepts” - it is important evidence in the case of a dispute. These contracts are for a very basic web site. If your web site downloads software onto the users computer or allows the user to enter into any commercial transactions then you will need additional terms and conditions. Distance selling is a regulated activity within Europe and so you should ensure that both the terms and conditions and the processes you use comply with the law. In conjunction with the Privacy Policy you should ask the User some questions which will allow them to elect what you do with their personal data. The law in this area is currently changing and so I would recommend that the default position for each user is that you do not pass their data to any third parties unless they have specifically requested it (called “opt-in”).

[Disclaimer: This agreement is provided by Econsultancy and Pillsbury Winthrop as an example only. There may be circumstances applicable to your situation which would make this agreement inapplicable or inaccurate. The information given in this agreement is not legal or commercial advice nor a substitute for such advice and must not be relied on as such. If you require legal advice you must always consult a suitably qualified lawyer.]

We’d like to thank Pillsbury Winthrop, http://www.pillsburywinthrop.com, for providing this template.

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