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FAQ: Purchasing IT FAQs

8 FAQs people ask about purchasing IT.

  1. From a legal perspective, what is the difference between purchasing hardware, software and IT systems?
  2. How does copyright apply to software?
  3. What is a software licence?
  4. How can we ensure that a computer system we buy does what we want it to?
  5. Do I need a written contract?
  6. How should I expect my solution to perform?
  7. What if the IT solution fails to work properly?
  8. What key elements should I put in my IT maintenance contracts?

1. From a legal perspective, what is the difference between purchasing hardware, software and IT systems?

Computer hardware is like any other tangible asset. When you make an outright purchase, you own the asset. (You may also lease or rent hardware rather than purchasing it outright.) You may also purchase related services (such as a maintenance contract) at the same time, or have other rights such as a guarantee. Although software is delivered in tangible form (eg on a CD-Rom), the software 'code' itself is an intangible intellectual property, protected by copyright law. In general, you do not purchase software outright. While you may purchase a physical CD-Rom, you also purchase a licence allowing you to use the software in accordance with the terms of the licence. Ownership of the software remains with the copyright owner (eg the company which originally created the software).

If you commission bespoke software, or use a consultant to modify software for you, you should ensure that the contract specifies that you will own the copyright - otherwise, you may be unable to make further changes to the software without permission, and may have to make further payments to the original software developer. When you purchase a computer system, the contract may involve a mix of these, and may include other organisations apart from the final supplier. As a simple example, if you buy a computer system, including some installed software, the supplier might sell you the hardware and various services (eg installation and configuration) but your use of the software could still be governed by a licence from the original software developer or publisher.

2. How does copyright apply to software?

In general, copyright remains with the software publisher (eg Microsoft). When you buy the software, you actually buy a licence to use it. The copyright owner still has a monopoly right, restricting how you can use the software. Infringing this right lays you open to both civil and criminal legal action.

3. What is a software licence?

The software licence sets out the terms and conditions covering how the copyright holder (the licensor) allows you (the licensee) to use the software. The licence may be provided electronically (eg on the software CD-Rom) or on paper. You need to read and understand the licence to ensure that you do not infringe the licensor's copyright. The major terms in a software licence typically include:

  • How many copies of the software you are allowed to make and use.
  • Any restrictions on using the software. (For example, Microsoft offers cheap licences for academic use only, prohibiting commercial use.)
  • Prohibitions on modifying the software.
  • Various legal clauses specifying which country's laws apply and so on.

Breaching the licence terms can lead to legal action against you in the civil or even criminal courts.

4. How can we ensure that a computer system we buy does what we want it to?

The key is to buy an 'IT solution' rather than just a collection of hardware and software. If you enter into a contract to purchase an assembly of various hardware and software items, that is what you will get. Whether it does what you want it to will be your problem. Instead, you can contract to purchase an IT solution. Rather than just specifying what items you want to purchase, you also specify what you want the system to do. For example, if you want to network some computers in your office, instead of just saying that you want specified software and cabling, you specify how you want the network to perform. The supplier will then also be responsible for meeting that 'functional specification'.

5. Do I need a written contract?

In principle, oral contracts can be just as binding as written ones. But, as with other purchases, a written contract can help to provide certainty, making the terms of the contract as clear as possible and ensuring that they reflect the intentions of buyer and seller. It can also act as evidence of what has been agreed in case of dispute. In business, IT solutions are often 'critical tools', and any problems could cause significant damage to the performance of your business. In these circumstances, a written contract is always a good idea.

6. How should I expect my solution to perform?

Broadly, you can expect the solution to be of 'satisfactory' quality and 'fit for the purpose'. Including explicit measures within a contract reduces the risk of disagreement over what is satisfactory. Functionality of the solution can be measured against a 'Functional Specification' document. It is possible to contractually commit a solution provider to deliver a system which performs materially in accordance with the functional specification. Measuring functionality is difficult. However, if it can be proved that the agreed functionality was not achieved - for example, if an internet based application service provider solution only operates 95% of the time (as opposed to the agreed 98%) - then this could give you a right to claim damages provided that the agreement is properly drafted. Take advice if you are uncertain how to prepare an appropriate functional specification.

7. What if the IT solution fails to work properly?

In practice, whether you have already paid for the solution will also make a difference. If you have not yet paid for the solution, you may not be legally obliged to pay for it until it works properly, or you may be obliged to pay only for those parts which are satisfactory (for example, functioning hardware which has been supplied). The exact position depends on the terms of the contract. The contract might even include provision for compensation. If you have already paid, you may need to get the supplier (or a third party supplier) to repair, replace or even completely redevelop the solution, at their cost. Which of these applies will again depend on the contract. The supplier may be willing and able to sort out the problems quickly; you may have to negotiate a solution; or, in the worst case, you may need to take legal action.

8. What key elements should I put in my IT maintenance contracts?

What maintenance contract you want (and how much you are prepared to pay) will depend in part on how important the computer system is. For example, you may want to ensure that 'mission critical' systems will be repaired or replaced almost immediately, while a simple PC used for day-to-day office work is less significant. Key elements include:

  • What routine maintenance will be carried out, how often (eg an annual 'service').
  • How quickly emergency maintenance requests will be responded to.
  • Where maintenance will take place (eg on your premises).
  • Whether alternate facilities (eg a substitute computer and software) will be provided during repairs.
  • What charges there are (eg annual maintenance fee, emergency call out charge, costs of parts and labour etc).

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The article above was written with considerations from Corporate Law tutors in Lancaster and Commercial Law advisors based in Wigan. In relation to the article above our solicitors who serve areas such as Southport, are able to offer expert legal advice on this subject.

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