IT-Services

Procurement & Portfolio Management

Contract law for Employees

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Why are we holding this presentation?

Verbal statements count!

You are endangering a procurement

You communicate (too much) with suppliers

We want freedom to negotiate

«Because you don‘t know what you‘re doing!»

Good Ideas should (have the ability to) be correctly

implemented.

ETH as an institution «knows» what it‘s doing!

Jürg Häubi

Motivation

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«For larger procurement projects it is necessary to have a

formal contract signed by both parties and not just a

purchase order.»

Jürg Häubi

Advice from Last Audit IT-Procurement

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Agenda

• Introduction

• Conclusion of a contract

• Contract design

• Liability/ risks

• Project management

• Questions

• Links/ contacts

• Thanks

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Introduction

Jürg Häubi

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Idea

Project

Procurement

Planning

Tendering

Award

Contractual framework-> Freedom/ limitations

Contract

Project management

Success

Jürg Häubi

Procedure

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«Nul n’est censé ignorer la loi!»

«Ignorance of the law does not protect one from

punishment!»

Everyone is familiar with sayings like these! This is how

the public expresses it. A federal institution needs to be

exemplary in this regard.

In Switzerland, the legislation pertaining to the drafting of

contracts is the Federal Code of Obligations (OR). Other

legislations exist for international agreements. Jürg Häubi

Advice!

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1000 orders/ year

60 million CHF/ year

400 contracts

Jürg Häubi

IT-Procurement at the ETH

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Purpose of the Information

a) We want to raise the sensitivity of all demand organisations toward

topics pertaining to contractual law in the procurement of IT.

b) We want an exchange of tips between our ETH internal clients and

the ITS-procurement department.

c) The views expressed here will help with defining the demands of the

ETH and to protect the ETH against unwanted demands from the

suppliers. Particularly, to set clear conditions that are acceptable to

the ETH.

d) The legal services of the ETH should always be included in specific

problems of a legal nature.

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Financial regulations:

http://www.fc.ethz.ch/docs/allgemein/financial_regulations_eth_zuri

ch_050928_v120101.pdf

Jürg Häubi

Principles for Procurement at the ETH

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Art. 92 Purchasing orders

Order confirmation

Rules, exceptions

Art. 93 Procurement of information technology

supplies

Competences and contractual limits

IT-proposal

Art. 108 Written Form

Liability

Contractual limit

Long-term debt

Intangible assets

Signature competences

Jürg Häubi

Financial Regulations

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Fundamentals of the Law and their Meaning

Fundamental Laws for Public Procurement

What does «WTO subordination» mean?

Compliance with the principles(Transparency, Equal Treatment, Competition and Economic Efficiency)

Procedures and deadlines as well as formal requirements.

Appeal procedure / official decisions

Recourse and consequences

International

Confederation

Canton

Bilateral Agreement WTO Agreement

IVöB

Cantonal

Legislation

VöB BöB

Internal Market Law

Public orders of the

Cantons

Public orders of the

Confederation

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Procedure

Details on these procedures

have been shown in a

separate presentation.

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Procurements of the ETHZ shall be conducted according

to the guidelines of Swiss law and under Swiss

jurisdiction.

Jürg Häubi

Swiss Law

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Following T&C apply for the procurement of IT in the

ETHZ:

T&C ETH-Domain

T&C of the confederation regarding work contracts in IT and the

maintenance of individual software

T&C of the confederation regarding the purchase and

maintenance of hardware

T&C of the confederation regarding the procurement and

maintenance of standard software

T&C of the confederation for IT services

http://www.fc.ethz.ch/services/einkaufen

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General Terms and Conditions (T&C)

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The T&C of the ETHZ and the federal government for IT

procurement were negotiated with industry

representatives.

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Relevance of the T&Cs for our Procurements

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Conclusion of a Contract

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A contract is concluded through an offer and an

acceptance.

Offer and acceptance should coincide, so that a

consensus exists between the parties.

Federal Code of Obligations (OR)

To conclude a contract a consistent mutual expression of

wishes is required.

This can be done explicitly or implicitly.

Jürg Häubi

Definition

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Graphical Depiction

Contract = Offer (quote) + Order (Acceptance)

Offer

Order

Offer Offer

Order Order

No contract No contract Contract

«Yes, but…» «Yes» «Yes, but…»

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You require a standard solution and find it on the home

page of the supplier (advertisement) and obtain a detailed

OFFER.

The offer is suitable and you place an order according to

our T&C.

The supplier sends us a signed order confirmation.

Hence, the CONTRACT between ETHZ and the supplier

is concluded.

Jürg Häubi

Example Purchase

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By standard software often the T&Cs (usually EULA) of

the suppliers apply. If we don‘t react to this then we have

accepted this situation. Usually this means that US law

and a US court apply. This is highly disadvantageous for

us.

Jürg Häubi

Example Software

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Contract Design

Jürg Häubi

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The ETHZ signs contracts on the basis of the T&C of the

ETH or the ITS T&C of the federal government.

The legal service of the ETHZ maintains the appropriate

contract drafts.

These templates were adapted for IT procurement, by

ITS-PPF as part of their competences.

Jürg Häubi

Principles

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Following contract types are typical for IT-procurement:

Framework agreements

Purchase contract

Work contract

Service contract

Maintenance contract

Letter of Intent (non-binding)

Non-disclosure agreements (NDA)

Jürg Häubi

Contract Types

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The hierarchy of contractual components are defined so that no

problems arise with contradicting statements.

By default these are:

1. Frame agreement

2. Individual contract

1. Contract

2. T&C (ETH or IT federal government)

3. ETH tender

4. Offer from the supplier

Offers and orders shall refer to the appropriate contracts/T&C

Jürg Häubi

Hierarchy of Contractual Components

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Topics that need to be added to the contract, according to

the TC of the ETH and the ITS T&C of the federal

government: Changes/ amendments to the T&C

Details regarding delivery/ services/ acceptance/ warranty/ place of execution/

appointments

Costs/ types of cost

key-person used by the supplier/ Contact person at the ETHZ, substitutes of these

people.

Cooperative duties of the ETHZ (building access, services, …)

Categorisation of possible deficiencies and consequences

Potential import-/export limitations

Service/ maintenance/ support/ service times and troubleshooting time frames

Documentation

Commencement and duration of the contract, consequences of termination

Potential price adjustment rules, payment plan, potential penalty adaptations

Etc.

Jürg Häubi

Additions to the TC

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The ETHZ, with its contracts, wants:

To establish clarity, completeness and transparency

Fairness for all parties

The consistent assertion of its position

Risk mitigation for its institutions

To comply with procurement law and guidelines.

Get in touch with ITS PPF at an early stage.

Jürg Häubi

Summary

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Type Order/Service-

Contracts

(OR Art. 394 ff.)

Employment

Contract(OR Art.

319 ff.)

Work contract

(OR Art. 363 ff.)

Performance What is owed is merely that

action is carried out with the

necessary care, i.e. to the

extent of the abilities of the

individual not that the action

be successful.

What is owed is merely that

action is taken according to

the contractual agreements,

however not success.

What is owed is that actions

are carried out and the

resulting, contractually

agreed result.

Example Doctors performance:

Doctor attempts to heal, the

patient dies, nevertheless

the doctor has fullfilled his

duty, if he has objectively

done his best.

Typical case of every

employee of the ETHZ that

does their best.

The «functioning» of the

proposed IT System at

defined conditions and price.

The supplier must deliver

the agreed upon result

without any «excuses»,.

Jürg Häubi

Definitions of Performance! What is success?

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Type Work Contract

(OR Art. 363 ff)

Purchase Contract

(OR art. 184 ff)

Performance What is owed is that actions are carried

out and the resulting, contractually

agreed result.

What is owed is the delivery of the

contractually agreed upon item without any

deficiencies.

Comment The result is owed by the supplier. The supplier has the obligation to deliver an

item without legal or material flaw. If these

are present, then the supplier must honour

the contractually agreed upon and legally

binding warranty.

Termination Possible at any time for the ETHZ.

However the supplier must be

indemnified (compensated!)

Usually, not possible unless deficiences are

present

Jürg Häubi

Difference between Work / Purchase contracts

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Applies to standard products (HW and SW)

What is owed is deliver without deficiencies

Delivery is equivalent with acceptance

We can complain if there are deficiencies

Jürg Häubi

Performance with purchase contracts

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Regulation regarding the transfer of benefits and risks.

Agreement

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Definition INCOTERMS®

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Diagram INCOTERMS®

source: http://www.agilitylogistics.com/EN/PublishingImages/temp/incoterms.html

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Effect of acceptance

Reversal of proof-> the ETHZ must, from this point

onwards, prove that something is not alright!

Beginning of the period of limitation

Beginning of the warranty period

Transfer of benefits and risks to the ETHZ

Often partial or final payment to the supplier

Jürg Häubi

Effect of Acceptance

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The result needs to be clearly defined:

Performance contents: factual, temporal, personal

Performance scope: what is included/ not included

How are the risks distributed

The delivered Work/Result need to be submited to a

formal acceptance

Jürg Häubi

Acceptance of Result

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Right of use, copyright (protection purposes,

decompressing, reverse engineering,…), source code,

upgrade, update, maintenance and compatibility with old

versions

There are many different open source licenses.

Jürg Häubi

Specifics with Software

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Examples of Open Source Regulations

Software regulations by

license type (examples)

source: blogs.oracle.com

through google search:

open source license eula gnu

l

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Through «Legal Engineering» risks can be made

to be tangible and limited.

Contact ITS PPF (if applicable, Legal Service)

Jürg Häubi

Legal Engineering

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Liabilities/ Risks

Jürg Häubi

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Contract serves as a foundation/ limit

Damage is present

Contract violations

Cause for liability

(«There is a guilty party or a causal liability»)

Causal connection

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Liability

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Liability for contractual violations or failure to deliver on

extra-contractual obligations are not limited in the OR in

height or width.

Usually the height and width are defined and limited in the

T&Cs, this is in the interest of all contractual parties.

In principle the risks exist for the supplier as well as for

the ETHZ, therefore we want to keep our position in

focus. However, we will stay fair!

Jürg Häubi

Risks

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Delay We buy a computer that works perfectly but was delivered 3 weeks too late.

Defective performance (Warranty)

The supplied feed switches off frequently and without cause.

Damage (Product liability / consequential damage)

A relay catches fire due to excess voltage from the supplied control system,

which spreads over to the datacenter. The ETH datacenter burns down.

Legal warranty (property rights)

A supplier sells us a software with components not properly licensed from the

manufacturer or that contain patent violations.

Jürg Häubi

Examples of Risks

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In contrast to the liabilities for damage, penalties do not

need evidence of damage.

Delay (failure to fulfil the contract with regards to time)

(choose relevant milestones/ must be demanded in writing, except if automatism is agreed in the

contract)

Procedural principles(eg. T&C WV Art. 5.3/ 22.6) (Work safety regulations, working conditions and wage equality for both genders; confidentiality;

integrity clauses; …)

Performance penalties (eg. Service level agreement neglected, …)

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Penalties (eg. T&C WV, Art. 20)

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This refers to the delivery being free of deficiencies.

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Warranty

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Both in the case of delay and other deficiencies we`re

entitled to: Improvements (repair/ replacement)

Replacement administration (replacement through a third party at the cost

of the supplier)

Reduction (of price of purchase)

Damage compensation/ contractual penalty

Cancelation of the contract (reversal procedure)

Jürg Häubi

Rights of the ETHZ

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This refers particularly to violations of rights while using

software

Usage, saving, modifying, resale, but also topics related to property

rights, patent rights , creator rights and trademarks.

In such cases one should always involve legal services

Jürg Häubi

Protective rights

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Temptation of free availability!

Infection

Open source software can be licensed.

Jürg Häubi

Risks Involved with Open Source Software

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Project Management

Jürg Häubi

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Most of the future risks are determined in the planning

phase of a procurement, even undesired ones. Following

points must be clarified:

Requirements of procurement regulations with ITS PPF

Comprehensive, but not restrictive Specifications, Taking into

consideration the entire lifecycle (later maintenance/ upkeep/

expansion/ potential upgrade/ options)

Hence Acceptance procedure and conditions should be included

in later agreements with the supplier

Formulate a detailed Quantity structure and exact transcription of

the performance

Define and limit Coop. duties of the ETHZ.

Define a time plan with Milestones relevant to delay penalties.

Jürg Häubi

Planning Phase

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A contract is usually signed after the tendering process is

legally executed.

The realisation phase is about:

Defending against unjustified demands of the supplier

Enforcement of valid demands of the ETHZ (deadlines, warranty

cases, contractually agreed performance, …)

If necessary, timely reminders and documenting of potential

«problems»

If necessary, to manage change contractually and in keeping with

the project tender.

To conclude, signing of the acceptance protocols

Naturally together with ensuring that the «Work» is carried

out in a contractually agreed upon manner.

Jürg Häubi

Realisation Phase

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?

Jürg Häubi

Questions

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All T&C of the ETH and the IT T&C of the federal

government

http://www.fc.ethz.ch/services/einkaufen

IT procurement

http://www.id.ethz.ch/services/category/ppf

BBL Homepage

www.bbl.admin.ch

Contacts from ID-PPF

juerg.haeubi@id.ethz.ch orilka.titze@id.ethz.ch

dordaneh.arangeh@sl.ethz.ch (für higher-level questions)

Legal service of the ETHZ

http://www.rechtsabteilung.ethz.ch

Jürg Häubi

Links/ Contacts

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OpenSource Information

GPL und LGPL: www.gnu.org

BSD: www.bsd.org

Mozzilla: www.mozilla.org/MPL

http://de.wikipedia.org/wiki/Open-source

http://de.wikipedia.org/wiki/Open-source-lizenz

http://opensource.org/licenses

http://www.isb.admin.ch/themen/architektur/00164/

…

Jürg Häubi

Links

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Thank you for your attention

Thank you for your feedback

Jürg Häubi