Rather than merely presenting hypothetical warnings about what
can go terribly wrong with an important software project, it is
always far better when an actual case comes along to provide those
lessons. The recently decided case by the Court of Appeal in the
U.S. Seventh Circuit,1 does just that – in
TransCare provides ambulance and other medical transportation
services and it wanted to replace its dispatch and billing
software. Digitech's proposal to provide that software to
TransCare included a provision that the Appellate Court described
as a "90-day satisfaction guarantee". That offer
stated that during the first 90 days of software use, billing would
be limited to programming charges and that if TransCare was not
completely satisfied within that period, it could walk away from
the contract without paying any software license fees.
TransCare and Digitech proceeded to negotiate and entered into a
formal license agreement, and then TransCare issued a written
purchase order for the software under that agreement –
including a provision that incorporated Digitech's original
proposal, thereby including the "90-day
In the Appellate Court's words, "The
software did not work as TransCare expected...the software was
plagued with malfunctions relating to, among other things,
transferring data from TransCare's previous software
system, training...and operating the system to fit
TransCare's regular needs." When it was clear
to TransCare that the software was not going to satisfy its
expectations, TransCare attempted to exercise the "90- day
guarantee" and walk away from the procurement. When
TransCare ceased making license payments, Digitech locked the
software's operation remotely and litigation ensued.
Despite the "90-day guarantee" that Digitech
offered in its original proposal, and despite the subsequent
purchase order's inclusion of that proposal, the Appellate
Court found that the definitive license agreement: did not include
a "90- day guarantee"; required TransCare to
provide Digitech with a 90-day written notice period to cure any
material breach of the agreement prior to termination; and,
required that all amendments must be evidenced in writing. The
Court of Appeal further held that: (i) TransCare had not followed
or exercised the notice and cure period obligations that were
expressly provided in the license agreement; and, (ii) that no
evidence of a license agreement amendment, via the purchase order,
existed2 - therefore, the proposal's
"90-day guarantee" did not form part of the
Despite TransCare's allegations that: Digitech had
fraudulently misrepresented the functionality of the software; that
the proposal's "90-day guarantee" had
wrongfully induced TransCare to enter into the license agreement;
and, that Digitech wrongfully interfered with TransCare's
operation of the software, the Court of Appeal (for the most part)
upheld the trial court's decision in favour Digitech.
TransCare was ordered to pay the monthly license fees for the
remaining 25 months of the three-year fixed term license, as well
as other software service fees and some of Digitech's legal
This case provides five very clear software project
"best practice" reminders:
Make sure the license agreement clearly sets out the
software's detailed operational, functional and technical
specifications and requirements.
Make sure the software license includes adequate operational
testing, payment milestones, and use warranty periods that are
supported by reasonable (and pervasively accepted) remedial
Make sure that all "proposed" license rights
and benefits that a vendor proposes, and that the licensee has
relied on to select the software, are expressly included in the
software license agreement, e.g. especially any important
"90-day satisfaction guarantees".
Do not rely on terms and conditions of a Purchase Order to
amend the license agreement unless the parties have expressly
agreed to such change management method.
Always follow the remedial requirements and
obligations that are expressly set out in the license agreement; in
this case, the requirement of notice and cure period
1. Digitech Computer Inc. v. TransCare, Inc.,
2011 U.S. App. Crt., 7th Cir. Lexi 10177 (May , 2011) (before,
Wood, J., Williams, J. and Tinder, J.)
2. Ibid, case report, cited page 3, "In
order for the modification to be effective, Section VI of the
Agreement required written evidence that Digitech accepted the new
term. No such evidence exists: Digitech did not sign the purchase
order or take any other action indicating its acceptance. The
purchase order was therefore at most a proposal for a modification
that was never accepted, and thus its terms did not become part of
the overall agreement between [*11] the
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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On March 11, 2009, the Office of the Superintendent of Financial
Institutions of Canada (OSFI) released a revised version of Guideline B-10, Outsourcing of Business Activities, Functions and Processes.
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