As the Year 2000 approaches, many companies have already drawn up plans to solve the problem of software that will not recognise the change of date. However, aside from the obvious technical issues there are a number of legal and other issues which should be addressed.
Users of software will need to determine the likely cost implications. There are four main areas where costs could be incurred:
In conducting the initial audit of Year 2000 sensitive software.
In investigating and implementing any technical solutions.
Direct losses arising from software failure.
Indirect or consequential losses (such as loss of profit) from system failure.
The next step is to determine who will be liable for the costs. Should your supplier have provided you with hardware or software capable of dealing with the Year 2000 problem? In determining liability, the following are some of the more important factors which need to be considered:
Timing, i.e. at what point did it become reasonable to expect that software supplied would be Year 2000 compliant (typically software supplied from the mid1990s would be expected to be compliant).
Express terms. Most recent contracts should contain an express term that the software will be Year 2000 compliant - where there is such a clause and the software is not compliant, then there is a clear right of action against the supplier.
Implied terms. Generally, a contract for the supply of bespoke software which both parties intend to be used for a specific purpose is deemed to include an implied term that the software is reasonably fit for that intended purpose.
Exclusion clauses. These may exclude liability for Year 2000 compliance, but they can only be enforced in non-consumer contracts and in addition they must be reasonable and must be the result of negotiations between the parties concerned.
Limitation periods. Generally claims can only be brought within six years of the breach of contract.
Even where a loss has occurred and the liability of a supplier of non-compliant software has been established, other factors may reduce or shift that liability, depending on the action of the supplier. Important factors in this area are:
Third-party liability. For example, computer maintenance and outsourcing contractors may become responsible to correct defective systems, which are not supplied by them.
Replacement of software. Many suppliers are increasingly issuing upgraded and replacement software, which is Year 2000 compliant and this may substantially reduce any liability for old or non-compliant software supplied by them.
Insurance contracts. All existing policies should be reviewed, particularly at the date of renewal. Make sure the policies adequately cover possible loss associated with Year 2000 problems.
For any new contracts an express term should be incorporated to provide a warranty that the computer software provides for past and future dates for both the 20th and 21st centuries. All organisations should review the contracts in place and examine their options in the case of contracts for the supply of any software which is not Year 2000 compliant.
Edward Evans is a partner in William Fry Solicitors and a member of its information technology unit.