Drawing on its historical records, specialist insurer Hiscox warns that the economic downturn is likely to expose IT consultants to potentially costly legal claims for delivering a product or service that clients allege does not meet their expectations. It highlights ‘a defective product or service from an IT supplier’ as being the top reason for a breach of contract claim, and urges IT consultants not to overpromise and focus on better scoping of IT projects from the outset, and tighter management of client expectations.
Cases of breach of contract, where a company claims its IT supplier has failed to deliver a product or service in line with an originally agreed contract, made up more than a third (36%) of all the professional indemnity claims dealt with by Hiscox in the IT sector over a four-year period.
Of the largest 100 IT claims handled and paid at the company, the main causes of claims were:
· 68% claiming defective product or services (‘it didn’t do what they said it would do’)
· 60% claiming inadequate project management
· 56% claiming inadequate initial scoping of the project.
According to Hiscox, breach of contract claims could increase during an economic downturn where companies, who may be short of money, look to make cutbacks and reduce investment.
“IT projects often come under cost-cutting scrutiny and some companies decide that they can recoup some of their original investment, or get out of an existing contract, by claiming their IT contractor or company has not provided them with the IT system or service they were promised,” says the insurer, counselling that IT consultants check that their professional indemnity cover provides for breach of contract.