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New Model Services Contract

  • United Kingdom
  • Commercial and IT
  • Public procurement
  • Central government

03-04-2014

Supplier Speed Brief

New Model Contract Precedent for Government ICT and Business Process Outsourcing Contracts

Background

The Crown Commercial Service and the Government Legal Service have developed what they term “a substantially revised set of model terms and conditions for major services contracts for use by Government departments and many other public sector organisations” (the “Model Services Contract”).

The Model Services Contract is intended to reflect current Government priorities and recommended ways of doing business. It has been crafted for used with a range of Government procured business services, in particular, business process outsourcing and IT services.

The Cabinet Office has stated that the Model Services Contract replaces the OGC Model ICT Contract (version 2.3) (the “OGC Model Contract”) and has been designed for use for service contracts with a value of over £10 million. Cabinet Office has also indicated that the Model Services Contract is designed to be a template for services where the procurement “will typically require some form of formal dialogue with potential suppliers” i.e. a competitive dialogue or negotiated procedure procurement (and not a procurement under the open or restricted procedure). It is highly likely, however, that it will be used as a base template from which to create a bespoke contract to work under any procurement regime. This is, in essence, no different to the approach previously taken with the OGC Model Contract.

Points to Note

The OGC Model Contract was out of date (having not been revised since 2008) and it did not reflect many of the requirements of today’s market place. Also, suppliers often felt that it was, in places, too onerous or one-sided in favour of Authorities. That said, whilst the Model Services Contract seeks to update it and to redress the balance of the some of the shortcomings in the OGC Model Contract, it does not go as far as providing a framework for dealing with other common current issues that one might have expected such as cloud computing and open source software.

Good News

Suppliers will be pleased to see that various provisions in the Model Services Contract reflect a position that previously often required  substantial commitment in terms of time and negotiation to achieve. Examples include:

  • Due diligence - the incorporation of “Allowable Assumptions” and a truing up mechanism which works to shift some of the due diligence risk, in a defined and controlled manner,  away from the Supplier and onto the Authority;
  • Limitations on liability – whilst the proposed Supplier caps have increased in percentage terms (150% as opposed to the 125% that was frequently used under the OGC Model Contract), Suppliers will no doubt be pleased to see that these are now annual caps. Authority caps have also increased to equate to the annual charges (again on a yearly basis);
  • Termination Rights – a Supplier may now terminate for non-payment of overdue undisputed charges  40 working days after receipt of notice of non-payment rather than the 90 calendar days provided for in the OGC Model Contract i.e. roughly 34 days earlier;
  • Supply Chain Rights – Suppliers need only seek consent in respect of Key Sub-contractors (with Authorities having the right to object to the appointment of Sub-contractors in certain circumstances); and
  • COTS Software – the licensing provisions have been updated to allow Suppliers to licence their COTS software on their standard COTS terms.

The Supplier position has also been bolstered in other ways, such as by the inclusion of an unlimited employee liabilities indemnity in their favour as opposed to the one sided position under the OGC Model Contract, Supplier intellectual property rights have been strengthened with the default position in respect of ownership of IPR in Project Specific IPR and Specially Written Software now belonging to the Supplier and, where an Authority Cause has caused a delay or failure, compensation can now be claimed throughout the term and not just during any implementation phase.

An area of substantial change is that of performance management. With the introduction of a two-tiered approach often preferred by IT specialists i.e. Key Performance Indicators and Performance Indicators. One thing that Suppliers will not be pleased to see here, however, is the concept of the Authority withholding “a proportionate amount of the Service Charges”  until the failure is rectified to the reasonable satisfaction of the Authority. Suppliers would probably prefer the certainty afforded by service points and service credits, in order to have an accurate understanding of their risk exposure.

Bad News

Inevitably, various  ‘Authority friendly’ provisions have made their way into the Model Services Contract which will not be welcomed by the Supplier market, for example, the right of set-off by the Authority has been widened to cover any monies owed by the Supplier to any part of the Crown. This could have far reaching implications from a risk management perspective.

Likewise, there are added protections in favour of the Authority in areas such as warranties, where Suppliers are required to provide warranties in respect of the integrity of the information contained in the PQQ and ITT and any other information provided during the procurement process. Whilst a similar provision exists in the OGC Model Contract, these new provisions are more specific and robust. There are additional warranties in relation to the Financial Model (being a true and accurate reflection of forecast costs on profit margin) and notification of tax non-compliance. The introduction of the concept of the ‘Remedial Adviser’ is likely to be welcomed by Authorities as a way to resolve issues and bring on board third party expertise in the hope of saving the contract and improving the operating environment in the event of certain performance failures. The Remedial Advisor will be a third party expert brought in by the Supplier – and approved by the Authority – whose role is to mitigate and (where possible) remedy the problem at hand and put in place measures to avoid any future occurrence.

Another feature of the Model Service Contract is that it presents a number of both minor and more fundamental provisions which reflect current Government policy such as the promotion of the use of SME Suppliers and anti-tax avoidance provisions.

We will be issuing a in-depth commentary shortly with views on the detail of the changes.

Authored by: Nichola Watts, Senior Associate

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