Bruce McWilliam is a member of the KNOWlaw Group of the Toronto law firm of McMillan Binch.

* * *

No matter what business you’re in, you no doubt use technology, and probably rely on it to stay competitive. But do you know what steps to take to protect yourself when buying that technology?

What do we mean by ‘technology’? In one sense, technology is all around us ­ everything from wristwatches to cars contains microprocessors. But when you purchase a piece of technology which is significant to your business, either because of its cost, or because of how important it is to the operation of your business, it pays to take certain precautions.

Examples of significant technology acquisitions include telephone systems, computer systems (anything more than a pc), computer software (other than shrink-wrapped ‘off the shelf’ software), or any other sophisticated equipment, software or a combination of the two.

Keep in mind that when buying sophisticated products like these, more than the purchase price or licence fees are at stake. If these products don’t work as expected, your data, business opportunities and even your customers may be lost.

Here are 10 things you can do:

1. Hire a consultant:

You probably aren’t an expert on the type of product you’re buying. For a significant technology purchase, you should consider hiring a consultant to help prepare a request for proposal (rfp) and evaluate responses from suppliers for the product you want to purchase. This will help greatly in determining your exact needs, and will allow you to compare suppliers on a consistent basis.

2. Change the standard form contract:

Once you have selected a product and a supplier, the supplier will usually ask you to sign a supply contract in the supplier’s standard form. Most suppliers are prepared to make some changes to their standard form contracts, and in many cases purchasers should insist on changes.

We discuss some of the key concerns below.

3. Include descriptions and specifications:

It is critical that a technology contract contain a set of product descriptions and specifications.

The contract must specify in detail what the product consists of, what the various components do, and how the product must perform. What exactly is contained in the specifications should be tailored to your requirements; for example, if it is critical to your business that the product handle a certain number of transactions per hour, then that should be included in the specifications.

Sometimes people choose to rely only on the product documentation for the descriptions and specifications. This is sometimes acceptable, but only if you have reviewed the documentation carefully to ensure that it covers everything important to you.

4. The contract may not be enough:

In many cases you will have chosen the supplier or its product based on promotional materials or the supplier’s response to your rfp. But, due to the ‘entire agreement’ clause in most standard form contracts, you won’t be able to rely on these materials if a problem arises down the road, unless you make sure the contract either includes the provisions you want to rely on, or incorporates those materials by reference.

However, don’t automatically include other documents without giving them some thought; some provisions in them may not be applicable, or may conflict with the arrangement which you have ultimately negotiated with the supplier.

5. Timing is everything:

Many standard form contracts say the supplier will deliver the product, but don’t say when. The contract should include specific delivery and installation dates, and if the project is more involved (for example, where the supplier is developing the technology as part of the contract, or delivering it in stages) the contract should specify a detailed implementation timetable.

6. Perform an acceptance test:

Unless you are completely comfortable with the product, you should make sure that an ‘acceptance test’ procedure is included in the contract. This will specify that the product must meet the specifications in the contract within a certain period of time after delivery. If it d’esn’t, the supplier will usually be permitted one or more chances to fix the problems. You should withhold a substantial part of the purchase price until after the acceptance test is passed.

7. Check the warranty:

Most suppliers limit their warranties to replacing system components if found to be defective within a certain time period. Give consideration to expanding the scope of these warranties. You should consider requiring the supplier to say more about the general design and quality of the product. In addition to general warranties, the warranties should address specific issues such as viruses, disabling devices in the product’s software, year 2000 capability, the supplier’s title to equipment, and reconditioned components in equipment.

8. Maintenance and support:

In most cases, a buyer will look to the supplier to maintain and support the product, either under the purchase agreement or under a separate maintenance agreement. Among other things, you should make sure that the contract specifies what times support is available, how quickly the supplier must respond to trouble calls, and the level of support to be provided.

In some cases, you may want to have the contract give you an express right to have maintenance done by third parties.

9. What are your remedies?

You should have specific remedies available in the contract if the supplier d’es not perform as the contract requires. These might include a reduction in purchase price, a moratorium on maintenance fees, or, in extreme cases, the right to return the product and obtain a refund of all money paid.

10. Source code escrow:

The heart of computers and other modern systems is computer software. You should consider what would happen if the supplier g’es out of business or otherwise stops supporting the system adequately. Could you or anyone else maintain the system, or make modifications which may become necessary based on changes in your business? In order to do so, you may need the source code for the computer software included in the product. If you have any concerns that you may not have the access you need to the source code, you should require the supplier to put the source code in escrow with an independent third party from whom you can obtain it if disaster strikes your supplier.

Because of our ever-increasing dependence on technology, it is important for you to safeguard your rights in all major technology you purchase. Properly prepared rfps and contracts will provide substantial protection against unpleasant technology surprises.

(This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice on any particular situation.)