Coronavirus: what impact is it having on current IT & technology transactions?

16.04.2020

The coronavirus crisis is, of course, affecting people working in all sectors. It is also having a direct impact on current, ‘live’ IT project negotiations. Organisations are, quite sensibly, re-budgeting and re-prioritising their projects. The inevitable consequence is some of those projects are being cancelled or postponed, while others are becoming more urgent to complete, especially if they have a cost-saving driver.

On a more personal level, while easier than ever with all the technologies and tools we have, the sudden move to full-time remote working creates its own challenges: when working with clients, conducting negotiations, and ensuring projects maintain momentum, all while recognising the individual challenges people face during this period. We’ve been pleased to find people are invariably understanding if someone on the deal needs to work more flexibly or needs to deal with other things at short notice – both on internal project teams and with counterparties.

For people working on IT transactions now, what are the particular things that should be given attention in light of coronavirus?

Of course, almost all IT lawyers will be advising on contractual issues including force majeure, business continuity and the like. More strategically, for projects that are due to sign within the next few months, flexibility will be key – if acting for the customer, flexibility around the implementation timetable; if acting for the supplier, flexibility over how its resources might be deployed during a period of uncertainty.

On transactions we’re currently working on, we’re finding people are generally sympathetic to the need for flexibility on both sides. Both are trying to lock in commitments (whether future realisation of benefits for the customer, or revenue guarantees for the supplier), but as ever the devil is in the detail and you can be flexible while also sensibly protecting against the risks associated with uncertainty.

For example, if you’re the supplier, can you give your customer wriggle room over time lines and possibly suspension rights, but at the same time ensure you aren’t on the hook for all of the benched or stranded costs?

And if you’re the customer, can you phase roll-outs in a way that recognises the impact on your people and resources, e.g. through phase or project agreements, rather than a ‘big bang’ long-term contract commitment?

How is the negotiation and drafting of IT contracts changing in practice as a result of coronavirus?

The obvious things people are looking at more closely are force majeure, business continuity and the like. Those issues are the subject of very good knowhow write-ups available elsewhere.

In terms of broader trends, people are actually looking very critically at the detailed rights, remedies and protections that – while not quite boilerplate – we often take as read in IT transactions.

Customers are realising that large, long-term commitments – whether financially through exclusivity or minimum revenue commitments, or through signing lengthy one-off contracts – need to be considered very carefully. They now need to bear scrutiny in an uncertain business environment.

Suppliers are seeking downside risk protections in the form of increased early termination charges, and pushing back against revenue risks such as benchmarking and value for money terms.

That said, we’ve been pleased to see that people are conducting such negotiations in the right spirit and sympathetic that the uncertain environment affects all sides. While genuine ‘win-wins’ in these areas are as still as rare as ever, there is a realism that (to an extent) transcends some of the typical ‘sparring’.

What are the longer term implications for IT transactions?

It’s hard to discern any longer-term trends at this stage. Given some of the difficult interpretation issues we are seeing, people might insist on more certainty and specificity on key rights and protections, which would be a blessing.

More generally, as in other areas of life and work, the crisis might accelerate existing trends. For example, the trend towards shorter-term, more ‘modular’ IT contracts, as people start to see them as a hedge against uncertainty and the risk of large or long-term commitments. That might drive revenue protection behaviours on the supply-side – making charging models, benchmarking and the like tougher to negotiate.

Vik Khurana

Author