Client companies becoming more willing to sue IT contractors

Has been natural inclination to keep claims quiet
Good PI cover more important than ever

IT contractors may face an increasing risk of being sued when their projects fail to meet contractual obligations, says contractor specialist giant group plc.

According to giant group, in the past client companies have rarely looked to recover costs from IT consultancies and subcontractors when projects have developed glitches, been delayed or delivered over budget. However, a recent announcement from Sky that it is claiming millions of pounds in damages from EDS for an allegedly faulty IT system, suggests that a more litigious climate may be emerging.

Matthew Brown, Managing Director, giant group, says: The forthcoming EDS case suggests that client companies may be increasingly prepared to sue for damages when projects fail to meet contractual obligations.

Law firm reports rising number of claims against IT contractors

According to leading insurance law firm Reynolds Porter Chamberlain (RPC), the number of claims brought against limited company contractors is already rising. Alex Anderson, a Partner at RPC and one of the UKís leading lawyers specialising in professional indemnity claims, says she is currently defending more than a dozen claims against IT contractors at the moment.

Alex Anderson says: The number of claims against IT contractors I have advised on in recent years has risen markedly and I would expect that trend to continue. The vast majority of claims are settled out of court, so they tend not be widely reported.

According to RPC, claims tend to focus on two areas. In either scenario the client may look to bring a claim for costs.

Project does not meet operational specification
Project exceeds time restriction
RPC says that the clients usually claim for business interruption and loss of profits, and whilst IT contractors may have clauses in their contracts designed to exclude liability for such claims, Anderson warns that these contracts need to be carefully drafted as clauses limiting IT contractorsí financial liability may not always be enforceable in the courts.

Invariably, these claims are settled by the contractor agreeing to repay a percentage of their fees, something that smaller contractors can ill afford to do.

Contractors can offset the growing risk of claims being brought by clients by ensuring they have a high level of professional indemnity (PI) insurance cover.

Having a high level of PI cover will not stop clients bringing claims against contractors, says giant group, but it should more than cover the cost of any damages resulting from those claims. According to giant, 2 million worth of cover should be a sensible level at present.

Matthew Brown says: Having good professional indemnity cover is becoming much more important than it used to be. Some clients and therefore recruitment agencies will even insist that a certain level of cover is in place before hiring a contractor.

Nobody wants to broadcast that they are facing a claim so the increase in the number of PI claims has largely gone unnoticed.