ICT systems are the backbone of many organisations today. From hospitals to transport companies and from consultancy firms to financial institutions: a single bug, vulnerability or outage in a critical ICT system can disrupt business processes or cause significant financial damage. Making proper contractual arrangements is therefore essential. In this blog series, we highlight common mistakes made when negotiating and concluding ICT contracts, to help both customers and suppliers avoid unnecessary risks.
Previous blogs in this series covered positional bargaining, the contracting process and selecting the right supplier. ICT contracts can be quite extensive. A software licence, SaaS agreement or implementation contract often consists of dozens of pages covering liability, service levels, intellectual property and termination.
To avoid excessive customisation and negotiations, many businesses choose to work with general terms and conditions. By doing so, they do not need to renegotiate every contract from scratch. In practice, these terms often form the legal framework of the agreement. In some cases, the agreement even consists almost entirely of general terms and conditions, for example with standard SaaS services or software licences (EULAs), where the terms effectively constitute the agreement.
Providing general terms and conditions
General terms and conditions do not need to be explicitly accepted by means of a signature. They can already apply if they have been properly “provided” to the other party. This requirement is met if the other party has had a reasonable opportunity to take notice of the terms. It is not necessary for the other party to have actually read the terms, but they must have had the opportunity to do so. In business-to-business relationships, certain exceptions apply, for example in dealings with large professional parties or in the case of repeated transactions.
In practice, this often goes wrong. If general terms and conditions are not provided correctly, the other party may, in certain cases, invalidate them. This can have significant consequences. Provisions on limitations of liability, warranties or jurisdiction may then no longer apply. There are, however, important nuances: for example, a more flexible regime may apply to service providers, courts are less likely to allow invalidation in purely professional B2B relationships, and in ongoing commercial relationships renewed provision may not always be required.
Nevertheless, it is advisable to be careful when providing general terms and conditions. In this blog, we discuss five common pitfalls in providing and applying them.
Pitfall 1: referring to terms without actually providing them
A common mistake is referring to general terms and conditions in an offer or contract, without actually attaching them or otherwise making them accessible. For example, a supplier sends a quotation stating that its “general terms and conditions apply”, but without indicating where those terms can be found. In such a case, the other party has not had a real opportunity to review them. As a result, the terms may, in principle, be invalidated, although the previously mentioned exceptions may apply.
Pitfall 2: providing terms only after the contract has been concluded
Another common mistake is providing general terms and conditions only after the agreement has already been concluded. This may occur, for example, where parties reach agreement on IT services and the client subsequently sends its general terms after the supplier has already started performing the work. In practice, this also happens when suppliers include their general terms only on an invoice, for example in a pre-printed clause at the bottom. At that point, the agreement has already been concluded, even where payment in advance is required. The other party has then not had the opportunity to review the terms before entering into the agreement.
Pitfall 3: vague references to terms
It is common practice to refer to general terms and conditions in quotations. This is allowed, but the reference must be sufficiently clear. A statement such as “our general terms and conditions can be found on our website” may be insufficient if it is not clear where exactly on the website the terms can be found. In such cases, it can be argued that the other party did not have a real opportunity to take notice of the terms. At the same time, this requirement is not always applied strictly in practice. In B2B relationships, a general reference may sometimes suffice, for example where the other party could easily access the terms or can be deemed familiar with them. A more flexible regime may also apply to service providers.
Pitfall 4: uncertainty about the applicable version of the terms
A frequently overlooked issue is failing to specify which version of the general terms and conditions applies. For example, a quotation may simply refer to “the Supplier’s general terms and conditions”, without mentioning a date or version number. This can lead to disputes, especially if the supplier updates its terms over time or if multiple agreements are concluded between the parties. In such situations, significant time may be spent determining which version applies, instead of addressing the substantive dispute. This issue is particularly relevant where terms are published on a website and older versions are not properly archived. It may then be difficult to establish which terms were accessible at the time the agreement was concluded. It is therefore advisable to refer to a specific version (for example by date or version number) and to properly archive previous versions.
Pitfall 5: the “battle of forms”
Almost every business, whether supplier or customer, uses its own set of general terms and conditions. This can create complications in negotiations, as both parties attempt to apply their own terms. This is known as the “battle of forms”. In principle, the terms of the party making the offer apply (the so-called “first shot rule”), unless the other party explicitly rejects those terms. In practice, however, this often leads to complex discussions. To avoid uncertainty, it is advisable to explicitly agree which terms apply and which do not.
Conclusion
General terms and conditions often form the legal foundation of ICT contracts. In practice, however, mistakes are frequently made in how they are applied and provided. If not handled carefully, the other party may in some cases invalidate the terms, or disputes may arise about which terms apply, putting key contractual protections at risk.
Both suppliers and customers should therefore pay close attention during the contracting process to whether the terms have been properly provided and whether it is clear which terms apply.
The following practical tips may help:
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always attach general terms and conditions to quotations and contracts;
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use clear hyperlinks when terms are made available online;
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ensure that the terms are available before the agreement is concluded;
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refer to a specific version of the terms and properly archive previous versions;
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explicitly agree which general terms and conditions apply.
Other blogs in this series
Want to learn more about pitfalls in ICT contracts? Read our previous blogs on supplier selection and positional negotiation. Future editions in this series will address other common contractual pitfalls. Once the blog is online, a hyperlink will be added here. You can also subscribe to our newsletter if you would like to receive updates automatically.
