Australia: QWIK QITC Series: Excluding liability under QITC contracts

Last Updated: 15 March 2018
Article by Trent Taylor and Barton Donaldson

Most Read Contributor in Australia, September 2018

The QITC Framework

In August 2017, the Queensland State Government introduced the new Queensland Information Technology Contracting (QITC) framework for procurement of information and communications technology (ICT) products and services by Queensland Government.

In this QWIK QITC Series, we are providing general information in respect of how the framework operates.

In the previous edition of QWIK QITC Series, we reviewed the provisions in QITC contracts relating to procurement of ICT-As-A-Service and related services, and the key issues which arise in such procurements.

In this edition of the QWIK QITC Series, we will consider the manner in which certain liability of the Government Customer and the Supplier is excluded under the QITC contracts.

Exclusion of Consequential Loss

Generally, each of the Government Customer and the Supplier are not liable to the other party for Consequential Loss under the QITC contracts. This is subject to exceptions as detailed further below.

"Consequential Loss" is defined in the Contract to mean, in general terms, indirect or consequential loss not arising as a natural consequence of a breach or other event giving rise to liability of a party (being losses contemplated by the second limb of Hadley v Baxendale [1854] EWHC J70).

The definition also lists a number of specific categories of indirect loss, including loss of profits, loss of revenue, loss of any contract value, loss of anticipated profit and lost opportunity.

Importantly, loss of data (which falls within the definition of consequential loss in some other industry contracts) is expressly excluded from Consequential Loss to the extent such loss is arising out of any obligation of the Supplier under the Contract in respect of hosting, storage, migration, conversion, cleansing or back-up services, or arising out of any obligation on the Supplier with respect to viruses or other harmful code.

Where the exclusion does not apply

Although liability for Consequential Loss is generally excluded, there are a number of circumstances in which the exclusion will not apply.

For both parties (the Government Customer and Supplier), these are for any liability in relation to:

  • personal injury, sickness and death;
  • loss of or damage to tangible property; or
  • a claim for infringement of Intellectual Property Rights or Moral Rights (see QWIK QITC Week 5).

For the Supplier, these also extend to any liability in relation to:

  • fraud by the Supplier or its Personnel; or
  • any breaches of the provisions regarding confidentiality or privacy obligations by the Supplier or its Personnel.

The Supplier should note that Personnel extends beyond parties that the Supplier is variously liable for (being officers, employees and agents) to any Subcontractors whom the Supplier engages to provide the Products or Services under the QITC contract.

Contribution and mitigation

In general, the Government Customer or the Supplier is not liable to the other party where the other party or its Personnel has caused or contributed to the liability.

Additionally, both parties have an obligation to take reasonable steps mitigate any loss or damage suffered, and the other party will not be liable to the extent the party suffering the loss or damage has not taken such reasonable steps.

Takeaways

For Government organisations

  • Conduct a risk assessment at the outset of the procurement to determine the likely types of loss that you may suffer from the proposed Products or Services. Where the procurement is high risk, and the likely losses fall within certain categories of Consequential Loss that are excluded under the standard QITC contracts, consider whether a Bespoke Contract may be required for the procurement (see QWIK QITC Week 1), and whether a much narrower definition of Consequential Loss is more appropriate in the circumstances. Remember, however, that allocation of risk may affect the price paid for the Products or Services.
  • While you may be unable to claim against the Supplier for certain types of Consequential Loss (for example, for loss of revenue or loss of opportunity), be mindful that there are circumstances where the exclusion of Consequential Loss does not apply. For example, liability for Consequential Loss is not excluded from third party intellectual property claims.
  • Take care to ensure that you and your personnel do not cause or contribute to the loss suffered. Ensure that you and your personnel also take reasonable steps to mitigate any loss. Otherwise, your rights to claim against the Supplier for such loss will be reduced. For example, use of Customer Data and Software should be in accordance with appropriate internal guidelines and policies to minimise risk that personnel may contribute to loss of Customer Data or introduction of Harmful Code by the manner in which they use or have access to the Products or Services. It is important you adopt clear policies for personnel regarding ICT usage and security breaches. Staff should have adequate training and clear reporting lines to minimise response times, and any resulting loss or damage.

For suppliers

  • The exclusion of liability for loss of Customer Data is not going to apply where you are providing hosting, storage, migration, conversion, cleansing or back-up services. On these kinds of projects, which may involve a higher risk of data loss or unauthorised disclosure of personal information and confidential information, you should consider pricing the services accordingly considering the potential liability. Otherwise, if a negotiated outcome is required, you may prefer to engage with Government customers via a Bespoke Contract.
  • You may want to ensure that any contract with your Subcontractors for work in connection with a QITC contract includes appropriate back-to-back obligations and other provisions to ensure you have a claim against Subcontractors to the extent that they cause or contribute to loss or damage suffered by Government Customers. For example, liability to the Government Customer caused by the Subcontractor's fraud or the Subcontractor's breach of confidentiality and privacy obligations should be addressed in the subcontract.
  • You may want to examine your internal processes and policies to minimise any risk of being liable for losses which fall outside the exclusions, including for Consequential Loss. Also consider your insurance cover, and the extent to which any risks are covered (or excluded from protection) by your policies.

In the next edition

In the next edition, we will consider in more detail how the parties can cap liability that has not been excluded under the QITC Framework.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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