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Capping Liability: New Answers with New Challenges

by Kevin Noonan •
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The new federal government capping liability guidelines have much broader implications than simply removing the mandatory requirement for unlimited liability in its contracts. It would be a serious mistake to respond to tenders under the new guidelines without considering these broader issues.

On 16th August 2006, Minister for Communications, Information Technology and the Arts, The Hon. Helen Coonan, released new guidelines for limiting liability on ICT contracts.

The announcement made good on a promise from Minister Coonan to deal with a long running contractual debate over uncapped supplier liabilities in ICT contracts. The government accepts (Section 1.2) that this position “may significantly reduce market competition” for many ICT suppliers particularly SMEs, and “may result in agencies paying a higher than necessary contract price”. In the new guidelines, “the starting position for an agency ….is [that] the agency should be prepared to limit the liability of ICT suppliers”

The previous approach often led to intense debate during contract negotiations. As a result, many contracts did include a capped liability. However the outcome generally reflected more the strength of each party’s negotiation abilities rather than the actual requirements of the project.

The new guidelines introduce formal risk management procedures for arriving at the appropriate liability cap. This begins at tender preparation time and continues through to contract negotiations. Agencies are now required to formally document their process for arriving at the liability cap and this forms part of the audit trail of the project.

The bottom line is that ICT suppliers need to develop new strategies for dealing with liability caps, and to seriously consider the broader implications of the new guidelines. Previous strategies could very well lead to a bad outcome, such as a higher than necessary liability cap, or even losing the business.

Would you like to be fully informed about the new capping liabilities in ICT and not get left in the dark?

Attend Intermedium’s Capping Supplier’s Liability in ICT Contracts Breakfast Briefing on 12 October 2006 in Canberra. Michael Pym, - of Pym's Technology Lawyers, has 20 years experience in ICT contracts gained with major ICT companies, and in private practice - and myself will be speaking and sharing our knowlege.

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