Co-operation in IT projects

A recent case in the Technology and Construction Court has shone a light on the need for parties to co-operate when undertaking IT projects and the perils of not doing so.

Background

In Sanderson Ltd v Simtom Food Products Limited [2019], the parties entered into a contract for Sanderson to implement its software which enabled customers to digitise and automate processes in connection with production, finance and logistics in the food and drinks sector. 

Once the contract had been signed there was a site visit followed by various meetings and workshops during the early part of 2015 to address Simtom’s requirements and to train staff on the use of the software. In June 2015 Simtom appointed a new finance director. He expressed concerns about the software and the workshops and from there on the relationship appears to have deteriorated. 

In July 2015 the parties agreed to put back the project until September 2015. For reasons which were not agreed, there was little progress until a meeting in February 2016. By this point Simtom was substantially in arrears with its payments. The parties agreed to reschedule the payments and put the project on hold again. There was a dispute around the date on which the project would re-start with Sanderson arguing the agreed date was 1 February 2017 and Simtom alleging it was “around that time”. 

In January 2017, Sanderson contacted Simtom to seek confirmation they intended to restart at the end of the month. There were various email exchanges over the following weeks including a request from Sanderson that Simtom provide a date for a kick-off meeting. Sanderson advised that “failure to restart the project before the end of March 2017 will leave us with little choice but to consider the project to have been frustrated”. 

However, there was no commitment from Simtom that it was ready to restart and no date was suggested by them for the meeting. Instead Simtom argued it had not committed to a specific date for the restart and made various requests for information including details about module updates, resource requirements, and how similar sized organisations manage their requirements. 

Sanderson lost patience and instructed its solicitors to write to Simtom. Their letter advised that Simtom was in repudiatory breach and that the breach was accepted bringing the contract to an end. 

The decision

The judge looked at the nature of the relationship between the parties and commented:

“The Contract required close collaboration between the parties to define the Defendant’s business requirements, identify the action necessary to digitise and automate the Defendant’s production and accounting processes, implement the Claimant’s electronic system and ensure that the Defendant’s employees were properly trained in the use of the system. In the absence of a specific contractual provision requiring parties to co-operate with one another in this way, a duty to do so would be implied.”

Having looked at the history of the project he concluded that Simtom was responsible for almost all of the delay. It had been unable or unwilling to commit the resources required for the project due to day to day business demands. This included not staff not attending the training sessions when required or not attending whole sessions. By then not co-operating in the arrangement of the kick-off meeting and failing to make the necessary arrangements, it committed a clear breach of its contractual obligations. 

The judge found that the most obvious explanation for Simtom’s failure to engage was that it was no longer ready, willing or able to proceed with the project. Once Simtom allowed the March deadline for the kick-off meeting to pass, without taking any steps to co-operate, Sanderson was entitled to infer that Simtom had no intention of performing its obligations under the contract. Simtom therefore renounced the contract by declining to co-operate with Sanderson in restarting the project and Sanderson was entitled to accept the repudiatory breach. Sanderson was therefore entitled to recover damages to be assessed. 

Conclusion

Just because a contract remains silent on the question of co-operation, do not fall into the trap of thinking there is no duty to co-operate. The court will readily imply a duty in appropriate circumstances, particularly where both parties need to work together to achieve the desired result. Without such co-operation project failure is perhaps inevitable. 

If entering into an IT supply contract as a customer, do not assume that the supplier is the only one with duties to perform. In most cases you will need to ensure that you have in place sufficient resources to support the implementation and to undertake any training necessary. Make sure you understand what will be required from you before entering the contract. 

For suppliers a right to terminate for failure to co-operate will not be lightly inferred and in each case will be assessed on the facts of the case. Terminating without a right to do so is itself a repudiatory breach of contract. Parties seeking to terminate contracts in these circumstances should seek legal advice to avoid inadvertently terminating wrongfully. 

Failing to co-operate by either party could lead to the other party terminating the contract and claiming damages for repudiatory breach – an expensive lesson to learn.