Introduction to Danish IT contracts and IT law
IT contracts spring 2017
Lars Ingemann, IT-University of Copenhagen, [email protected]
Introduction to Danish IT contracts and IT law
• A program specifies what the computer must do – also in
special cases such as user left mail address blank
• A contract specifies what the parties must do - also in
special cases such as delays, customer doesn't provide
domain experts, bankruptcy, war
• Contract principles
– Fundamental principles in Danish contract law
– IT contracts
– Two cases of disputes
• Danish IT contracts and acquisition
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The ‘old’ Danish standard IT contracts: K33 and K18
The ‘new’ Danish standard IT contracts: K01, K02 and K03
K02: list of appendices and timeline in the contract
Acquisition process (public and private sector)
• Typical situations – how to handle?
• Additional readings
The Contract Act, The Sales of Goods Act and Contracts
• The Contract Act (“Aftaleloven”)
– Offer and reply to an offer is binding (rights and duties)
– An oral offer is as binding as a written offer
• The Sale of Goods Act (“Købeloven”)
– An agreement of delivery of an “item” for payment
– Consumer purchase is different from trade purchase
• Contract
– Written agreement – easer to prove what was agreed
Contracts
• Delivery: when has delivery taken place (payment and
transfer of risk)
• Breach: The agreement is not honored, i.e..
– Delay
– Defects (trade purchase: duty to investigate / examinate )
• Rights at breach:
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Terminate the purchase (object and payment are returned)
Remedy or supplementary/replacement delivery
Proportional reduction of price
Compensation (if a party has incurred a consequential loss)
• Disputes (if parties cannot reach a settlement)
– Courts, Arbitration or Mediation
• Common practice for it contracts also include:
– Penalties (payment for delayed delivery or defects)
– Changes to the contract
Danish IT contracts – regulation of
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Requirements and solution
Defects (according to requirements and reasonable expectations)
Use of subcontractors
The duties and rights of the parties
Delivery schedule (clarification, analysis, testing..)
Testing
Rights at breach
Change procedure for contract
Other events (strike, bankruptcy, acts of god…)
Interpretation and precedence
Dispute resolution
Dispute interpretation at the courts: (1) mandatory rules in
legislation/laws, (2) specific clauses in contract, (3) general
clauses in contract, (4) customs and industry customs, (5)
governing laws in the area and (6) former rulings
Two cases of dispute – lecture discussion
The history of the Danish standard it-contracts…
K33
(1987)
The ‘old’
IT contracts
K18
(1992)
Bonnerup
report
(2001)
The ‘old’ Danish standard it contracts: K33 and K18
• Originally the majority of IT acquisitions was done under
the governmental standard IT contracts known as K33 and
K18
• K33 (1987); “Government standard contract for computer
turnkey delivery – joint delivery of hardware, bespoke and
standard software”:
– Developed for large projects of bespoke turnkey computer systems
– Not suitable for prototype development or phase acquisitions
– Not usable for separate acquisitions of software and hardware
• K18 (1992); “Government standard contract for
standardized computer systems”:
– Same area of use as K33 but intended primarily for minor acquisitions
Advantages and disadvantages of K33 and K18
• Advantages:
– The contracts was very thorough and detailed
– They regulated a lot the relevant subjects
– The contracts was complete (ready to use) and the content
was known by the professional parties in the market (also
used in the private sector)
• Disadvantages:
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Was not a light read
Was hard to read and understand for non-lawyers
Placed a lot of burdens on the supplier
Was the cause of conflicts in the projects
didn’t contain any conflict resolution models
Didn’t contain any change procedures
• The Bonnerup report (2001) call for new and more flexible
contracts to support phased delivery of large projects.
The history of the Danish standard IT-contracts…
K33
(1987)
K01
(2004)
The ‘new’
IT contracts
The ‘old’
it contracts
K18
K02
(1992)
(2007)
Bonnerup
report
K03
(2001)
(2012)
SL-07
K04
(2017?)
K02 - “STANDARD CONTRACT FOR LONG-TERM IT PROJECT”
• Available in 2007:
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Replacement for K33
Covers hardware and/or software (standard or bespoke)
Long term project (3+ months), 1 or more phases
Primarily fixed price
• Innovations:
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Phased delivery, with part-delivery and testing of these
The test concept was enhanced
A ‘maturity model’ was introduced
Requirement specification and solution description from the
supplier was merged into one appendix (delivery description)
• Challenges:
– As with K01 the appendices had to be developed
– Operations could be part of delivery, but required a full
operations contract to be added (as appendix 7)
– Maturity model was seldom used
K02 – List of content
K02 – List of appendices
Appendix 3: Now
contains requirement
specification and
solution description
Appendix 7: operations
could be part of the
delivery with a full
contract in the
appendix
Appendix 14: Testing
now includes:
• Factory test
• Installation test
• Partial delivery test
• Acceptance test
• Service level test
K02 – the timeline in the contract
clarification
phase
maintenance
& support
delivery
Part
delivery
#1
Part
delivery
#2
Warranty
end
Signature
Withdrawal?
Part delivery
tests
Contract
end
Acceptance test
Important milestones in the K02 contracts:
• The customer can choose to withdraw after the clarification phase (seldom used)
• The customer can start to use the system after part delivery (very often used)
• Remedy of defects are ‘free of charge’ until end of warranty (often 12 months
from acceptance test)
Acquisition process (public sector)
Restricted
tender
Contract
Notice
Prequalification
(often 5
suppliers)
Tender
material
Final
Offers
Evaluation
(BAFO)
Historically most common tender process in government:
• A contract notice is published in the EU (TED)
• Interested suppliers submit an application for pre-qualification with relevant
references of similar deliveries and information on company financials etc.
• The most relevant suppliers are prequalified and invited to submit their offer
• The tender material consists of the draft of contract and appendices and tender
procedures
• The suppliers submit their offers as completed appendices and reservations (if
allowed). (BAFO = Best And Final Offer)
• Offers are evaluated as stated in the tender material and contract signed.
Acquisition process (public sector)
Negotiated
tender
Contract
Notice
Prequalification
(often 3
suppliers)
Tender
material
INDO1
Negotation
Final
offers
Evaluation
Tender procedure for selected industries, and now open for central government
• First phase (prequalification) and last phase (evaluation) identical to restricted
tender. However often only 3 suppliers selected for the process.
• Suppliers submit an initial offer (INDO1 = INDicative Offer 1)
• This offer is negotiated and tender material and offers adjusted
• There can be several indicative offers; INDO1, INDO2, etc. in the negotiation
phase. Number of suppliers can be reduced (down-selection)
• The customer declares end of negotiation and suppliers submit the final offers
(BAFO = Best And Final Offer) that are evaluated and contract signed.
Acquisition process (private sector)
Private sector
tender
RFI
Shortlisting
RFP
INDO1
Negotation
Final
offers
Selection
Go back to other suppliers
during process
The process is very similar to negotiated tender, with some significant differences
• Terminology: RFI (Request for Information), RFP (Request for Proposal)
• Selection of the supplier is less formal and can be based on more subjective
criteria's (who do we like? Who do we feel confident about?)
• Down selection is often used
• Customer can go back to suppliers that have been ‘put on hold’ through downselection
Additional readings (english)
• The Danish Contract Act.pdf (“Aftaleloven”).
http://www.consumereurope.dk/Menu/Consumerlaws/Danish-laws/Danish-Contracts-Act
• K02 contract and model appendices
• Danish standard it contracts can be found here:
http://www.digst.dk/Styring/Standardkontrakter :
• K01 and K02 are available in English (unofficial
translation):
– https://www.digst.dk/Styring/Standardkontrakter/K01Standardkontrakt-for-kortvarige-it-projekter/Engelsk-version-af-K01
– https://www.digst.dk/Styring/Standardkontrakter/K02Standardkontrakt-for-laengerevarende-it-projekter/Engelsk-versionaf-K02