IT projects don’t always go to plan - make sure you’re covered!

IT projects don’t always go to plan

A misunderstanding over contract deliverables, a software bug or loss/damage of client data. If an unhappy client sues (rightly or wrongly), the money clock starts ticking.

When contracting via an agency your ‘clients’ are both your Agency and the End Client who your Agency places you with. In short, your liability is to BOTH.

While Professional Indemnity isn’t required by law, contracts are insisting that adequate indemnity cover is in place.

Your contracts contain some important clauses that get as much attention as a wallflower, but have a huge impact on whether or not you have the comfort of an Insurance Policy to bail you out, or whether you should have saved more during University (as you can still be held personally liable). Under an Annual policy (for your own individual cover), you will have to ensure that your limits of a cover are specific to the contracts you’re working on. Typically PAYG (Pay As You Go) insurance programmes will already have the limit of cover sorted to ensure it meets with any contractual obligations owed by you.

Lastly, beware of the Limitations Act 2010! This little piece of law basically states that anyone you work for (that is, your Agency and the Client you are being placed with) can file a lawsuit or claim for a sum of money within six years - and the kicker here is that the six year period starts ‘after the work is completed’. This is pretty significant for Annual Insurance as ‘technically’ you would be required to renew your policy until you cease to trade - a bonus though if you are on PAYG because the Agency takes the renewal obligation for you while providing continuous cover long after you’ve left the contract!

To help give you more of an idea what you could potentially be up against, here are a few examples:

  • A software Developer was contracted to design and implement a solution to automate a company’s business activities. A customised solution was developed and installed. All of the company’s records were transferred to the system. A week after going live the system crashed and it was revealed that the developer had not properly installed a backup for the data transferred to the system. As a result, the company’s client information, billing records and other account details were lost. The company sued for damages in excess of $500,000 for the breach of contract, negligence and consequential loss together with the cost of installing a replacement system.
  • A Software Programmer delivered an invoicing system to their client, which had software bugs that could not be fixed in a timely manner. The client sued alleging that due to poor functionality, they couldn’t collect receivables due. Over $25,000 in damages was paid as a result.
  • Over $1,000,000 in damages were sought from an IT contractor who was a systems integrator and was contracted to install a computer system to manage information regarding the client’s insurance policies. The contractor failed to meet established deadlines and deliver a functioning system. The client sued alleging the contractor sold the system knowing it could not be delivered on time and function as sold.
  • An IT contractor (set up as a company) develops a proprietary software to integrate with their clients’ Human Resources and payroll systems. Their development team experiences a number of unforeseen setbacks in the production of their software and subsequently fails to deliver their product on time resulting in missed deadlines and payroll glitches. Although you content that the client repeatedly change the size and scope of the project, ultimately the client fires you and files a lawsuit for breach of contract seeking to recover lost profits due to the disruption.

As a final thought, sometimes the things you need most are the things you don’t know you need.

This Contractor Corner post on Indemnity was written by Kirsty Young, I2I Broker manager, I2I Insurance Brokers Limited.

If you would like to find out more about PAYG insurance, contact Vanessa Thomson, Potentia’s Contracts Administration Manager.