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Online shopping: Considerations for your IT contracts

Victoria Robertson, highlights some key aspects of IT contracts to be considered by retailers.

With many retailers seeing online sales (B2B or B2C) as a necessary supply chain tool following the pandemic and lockdown provisions, effective purchasing and use of IT services is becoming key to the retail sector. As well as enabling online sales, e-commerce resources also assist retailers with managing cashflow and a more effective use of their workforce if processes can be automated.

In this article, Victoria Robertson, a partner in our commercial team, highlights some key aspects of IT contracts to be considered by retailers.

Where online sales are carried out via platforms such as Amazon or eBay, retailers will need to comply with the terms and conditions set by that platform. Our article sets out further detail on the regulation of online retail platforms; this article focuses upon retailers engaging with IT providers to provide their own e-commerce facilities.

IT contracts can vary greatly and cover diverse matters such as sales of hardware, website development and ERP systems. Contracts for software as a service (“SaaS”) where essentially access to software which already exists is purchased are becoming increasingly prevalent within the retailer sector as IT suppliers continue to develop off-the-shelf software which can be easily put into place by retailers.  

Some of the key considerations arising in the procurement and negotiation of e-commerce software contracts (and in particular SaaS contracts) include:

  • Charges: SaaS pricing models normally follow either periodic charging or usage-based charging and it will be important to consider from a practical angle which is more advantageous to a retailer depending upon how high the usage will be.

Support and maintenance charges should be reviewed at the outset as these are often provided for as additional charges. Periodic increases throughout the contract and discounts for high volumes of purchases should be considered.

  • Versions and updates: Retailers should ensure that they are being provided with updates to software and, where possible, new versions to ensure that they have access to the most up-to-date version of each piece of software.
  • Security arrangements: Retailers will need to carefully review the security arrangements put in place by a software provider. This will need to cover IT security, personnel, security of servers, and data security. PCI DSS compliance is required where payments are being made via the software. Many providers such as Stripe can provide PCI DSS compliant payment software. Data loss and corruption will need to be carefully considered and contractual obligations and remedies documented.
  • Personal data: Where customers’ personal data is being processed externally, retailers need to ensure that any processing is compliant with relevant law and its information governance policies. If processing takes place abroad then consideration must be given to whether there are adequate safeguards in place. This must be kept under review as it is subject to change, as seen with the recent withdrawal of Privacy Shield as a compliant method of processing in the USA.
  • Intellectual property: Retailers should be clear over ownership of intellectual property, in particular, project specific IPR, licensing of background IPR and the ownership of content within software. SaaS contracts are often with re-sellers and involve a separate licence of the underlying software. IPR indemnities should be sought from suppliers.
  • Service levels and service credits: KPIs (key performance indicators for service levels) should be properly considered and procedures set out for management of KPIs. These are likely to include availability and response times and allow for ongoing objective assessments of the performance of software. Redress for KPI failures should be included within the contract. This is normally by way of service credits, which provide a financial incentive for suppliers and are normally expressed as being a percentage of the periodic charges payable for use of software.
  • Business continuity and force majeure: Retailers will need to assess suppliers’ contingency and continuity plans so that services can continue to be provided during events such as fires, floods, pandemics and terrorist attacks. The force majeure clause will need to be reviewed carefully to ensure that this does not undermine the contingency plan by allowing a supplier to instead rely on force majeure. Force majeure clauses in general should be carefully reviewed in light of COVID as they can present a risk or an opportunity to exit.
  • Jurisdiction and governing law: software providers can often be based in a different jurisdiction. The jurisdiction and governing law clauses need to be reviewed carefully as often an underlying licence may state it is governed by a law different to that cited in the main contract.
  • Risk and liability: Retailers will need to review indemnities, warranties, limitations on liability and to check what insurance the supplier has in place.

The national commercial team at Weightmans has vast experience in drafting and negotiating software contracts. Please visit our 'Digital transformation in the retail sector' page for more information.

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