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| | 12.05.2014 2
Why are we holding this presentation?
Verbal statements count!
You are endangering a procurement
You communicate (too much) with suppliers
We want freedom to negotiate
«Because you don‘t know what you‘re doing!»
Good Ideas should (have the ability to) be correctly
implemented.
ETH as an institution «knows» what it‘s doing!
Jürg Häubi
Motivation
| | 12.05.2014 3
«For larger procurement projects it is necessary to have a
formal contract signed by both parties and not just a
purchase order.»
Jürg Häubi
Advice from Last Audit IT-Procurement
| | 12.05.2014 4
Agenda
• Introduction
• Conclusion of a contract
• Contract design
• Liability/ risks
• Project management
• Questions
• Links/ contacts
• Thanks
| | 12.05.2014 6
Idea
Project
Procurement
Planning
Tendering
Award
Contractual framework-> Freedom/ limitations
Contract
Project management
Success
Jürg Häubi
Procedure
| | 12.05.2014 7
«Nul n’est censé ignorer la loi!»
«Ignorance of the law does not protect one from
punishment!»
Everyone is familiar with sayings like these! This is how
the public expresses it. A federal institution needs to be
exemplary in this regard.
In Switzerland, the legislation pertaining to the drafting of
contracts is the Federal Code of Obligations (OR). Other
legislations exist for international agreements. Jürg Häubi
Advice!
| | 12.05.2014 8
1000 orders/ year
60 million CHF/ year
400 contracts
Jürg Häubi
IT-Procurement at the ETH
| | 12.05.2014 9
Purpose of the Information
a) We want to raise the sensitivity of all demand organisations toward
topics pertaining to contractual law in the procurement of IT.
b) We want an exchange of tips between our ETH internal clients and
the ITS-procurement department.
c) The views expressed here will help with defining the demands of the
ETH and to protect the ETH against unwanted demands from the
suppliers. Particularly, to set clear conditions that are acceptable to
the ETH.
d) The legal services of the ETH should always be included in specific
problems of a legal nature.
| | 12.05.2014 10
Financial regulations:
http://www.fc.ethz.ch/docs/allgemein/financial_regulations_eth_zuri
ch_050928_v120101.pdf
Jürg Häubi
Principles for Procurement at the ETH
| | 12.05.2014 11
Art. 92 Purchasing orders
Order confirmation
Rules, exceptions
Art. 93 Procurement of information technology
supplies
Competences and contractual limits
IT-proposal
Art. 108 Written Form
Liability
Contractual limit
Long-term debt
Intangible assets
Signature competences
Jürg Häubi
Financial Regulations
| | 12.05.2014 12 Jürg Häubi
Fundamentals of the Law and their Meaning
Fundamental Laws for Public Procurement
What does «WTO subordination» mean?
Compliance with the principles(Transparency, Equal Treatment, Competition and Economic Efficiency)
Procedures and deadlines as well as formal requirements.
Appeal procedure / official decisions
Recourse and consequences
International
Confederation
Canton
Bilateral Agreement WTO Agreement
IVöB
Cantonal
Legislation
VöB BöB
Internal Market Law
Public orders of the
Cantons
Public orders of the
Confederation
| | 12.05.2014 13 Jürg Häubi
Procedure
Details on these procedures
have been shown in a
separate presentation.
| | 12.05.2014 14
Procurements of the ETHZ shall be conducted according
to the guidelines of Swiss law and under Swiss
jurisdiction.
Jürg Häubi
Swiss Law
| | 12.05.2014 15
Following T&C apply for the procurement of IT in the
ETHZ:
T&C ETH-Domain
T&C of the confederation regarding work contracts in IT and the
maintenance of individual software
T&C of the confederation regarding the purchase and
maintenance of hardware
T&C of the confederation regarding the procurement and
maintenance of standard software
T&C of the confederation for IT services
http://www.fc.ethz.ch/services/einkaufen
Jürg Häubi
General Terms and Conditions (T&C)
| | 12.05.2014 16
The T&C of the ETHZ and the federal government for IT
procurement were negotiated with industry
representatives.
Jürg Häubi
Relevance of the T&Cs for our Procurements
| | 12.05.2014 18
A contract is concluded through an offer and an
acceptance.
Offer and acceptance should coincide, so that a
consensus exists between the parties.
Federal Code of Obligations (OR)
To conclude a contract a consistent mutual expression of
wishes is required.
This can be done explicitly or implicitly.
Jürg Häubi
Definition
| | 12.05.2014 19
Graphical Depiction
Contract = Offer (quote) + Order (Acceptance)
Offer
Order
Offer Offer
Order Order
No contract No contract Contract
«Yes, but…» «Yes» «Yes, but…»
| | 12.05.2014 20
You require a standard solution and find it on the home
page of the supplier (advertisement) and obtain a detailed
OFFER.
The offer is suitable and you place an order according to
our T&C.
The supplier sends us a signed order confirmation.
Hence, the CONTRACT between ETHZ and the supplier
is concluded.
Jürg Häubi
Example Purchase
| | 12.05.2014 21
By standard software often the T&Cs (usually EULA) of
the suppliers apply. If we don‘t react to this then we have
accepted this situation. Usually this means that US law
and a US court apply. This is highly disadvantageous for
us.
Jürg Häubi
Example Software
| | 12.05.2014 23
The ETHZ signs contracts on the basis of the T&C of the
ETH or the ITS T&C of the federal government.
The legal service of the ETHZ maintains the appropriate
contract drafts.
These templates were adapted for IT procurement, by
ITS-PPF as part of their competences.
Jürg Häubi
Principles
| | 12.05.2014 24
Following contract types are typical for IT-procurement:
Framework agreements
Purchase contract
Work contract
Service contract
Maintenance contract
Letter of Intent (non-binding)
Non-disclosure agreements (NDA)
Jürg Häubi
Contract Types
| | 12.05.2014 25
The hierarchy of contractual components are defined so that no
problems arise with contradicting statements.
By default these are:
1. Frame agreement
2. Individual contract
1. Contract
2. T&C (ETH or IT federal government)
3. ETH tender
4. Offer from the supplier
Offers and orders shall refer to the appropriate contracts/T&C
Jürg Häubi
Hierarchy of Contractual Components
| | 12.05.2014 26
Topics that need to be added to the contract, according to
the TC of the ETH and the ITS T&C of the federal
government: Changes/ amendments to the T&C
Details regarding delivery/ services/ acceptance/ warranty/ place of execution/
appointments
Costs/ types of cost
key-person used by the supplier/ Contact person at the ETHZ, substitutes of these
people.
Cooperative duties of the ETHZ (building access, services, …)
Categorisation of possible deficiencies and consequences
Potential import-/export limitations
Service/ maintenance/ support/ service times and troubleshooting time frames
Documentation
Commencement and duration of the contract, consequences of termination
Potential price adjustment rules, payment plan, potential penalty adaptations
Etc.
Jürg Häubi
Additions to the TC
| | 12.05.2014 27
The ETHZ, with its contracts, wants:
To establish clarity, completeness and transparency
Fairness for all parties
The consistent assertion of its position
Risk mitigation for its institutions
To comply with procurement law and guidelines.
Get in touch with ITS PPF at an early stage.
Jürg Häubi
Summary
| | 12.05.2014 28
Type Order/Service-
Contracts
(OR Art. 394 ff.)
Employment
Contract(OR Art.
319 ff.)
Work contract
(OR Art. 363 ff.)
Performance What is owed is merely that
action is carried out with the
necessary care, i.e. to the
extent of the abilities of the
individual not that the action
be successful.
What is owed is merely that
action is taken according to
the contractual agreements,
however not success.
What is owed is that actions
are carried out and the
resulting, contractually
agreed result.
Example Doctors performance:
Doctor attempts to heal, the
patient dies, nevertheless
the doctor has fullfilled his
duty, if he has objectively
done his best.
Typical case of every
employee of the ETHZ that
does their best.
The «functioning» of the
proposed IT System at
defined conditions and price.
The supplier must deliver
the agreed upon result
without any «excuses»,.
Jürg Häubi
Definitions of Performance! What is success?
| | 12.05.2014 29
Type Work Contract
(OR Art. 363 ff)
Purchase Contract
(OR art. 184 ff)
Performance What is owed is that actions are carried
out and the resulting, contractually
agreed result.
What is owed is the delivery of the
contractually agreed upon item without any
deficiencies.
Comment The result is owed by the supplier. The supplier has the obligation to deliver an
item without legal or material flaw. If these
are present, then the supplier must honour
the contractually agreed upon and legally
binding warranty.
Termination Possible at any time for the ETHZ.
However the supplier must be
indemnified (compensated!)
Usually, not possible unless deficiences are
present
Jürg Häubi
Difference between Work / Purchase contracts
| | 12.05.2014 30
Applies to standard products (HW and SW)
What is owed is deliver without deficiencies
Delivery is equivalent with acceptance
We can complain if there are deficiencies
Jürg Häubi
Performance with purchase contracts
| | 12.05.2014 31
Regulation regarding the transfer of benefits and risks.
Agreement
Jürg Häubi
Definition INCOTERMS®
| | 12.05.2014 32 Jürg Häubi
Diagram INCOTERMS®
source: http://www.agilitylogistics.com/EN/PublishingImages/temp/incoterms.html
| | 12.05.2014 33
Effect of acceptance
Reversal of proof-> the ETHZ must, from this point
onwards, prove that something is not alright!
Beginning of the period of limitation
Beginning of the warranty period
Transfer of benefits and risks to the ETHZ
Often partial or final payment to the supplier
Jürg Häubi
Effect of Acceptance
| | 12.05.2014 34
The result needs to be clearly defined:
Performance contents: factual, temporal, personal
Performance scope: what is included/ not included
How are the risks distributed
The delivered Work/Result need to be submited to a
formal acceptance
Jürg Häubi
Acceptance of Result
| | 12.05.2014 35
Right of use, copyright (protection purposes,
decompressing, reverse engineering,…), source code,
upgrade, update, maintenance and compatibility with old
versions
There are many different open source licenses.
Jürg Häubi
Specifics with Software
| | 12.05.2014 36 Jürg Häubi
Examples of Open Source Regulations
Software regulations by
license type (examples)
source: blogs.oracle.com
through google search:
open source license eula gnu
l
| | 12.05.2014 37
Through «Legal Engineering» risks can be made
to be tangible and limited.
Contact ITS PPF (if applicable, Legal Service)
Jürg Häubi
Legal Engineering
| | 12.05.2014 39
Contract serves as a foundation/ limit
Damage is present
Contract violations
Cause for liability
(«There is a guilty party or a causal liability»)
Causal connection
Jürg Häubi
Liability
| | 12.05.2014 40
Liability for contractual violations or failure to deliver on
extra-contractual obligations are not limited in the OR in
height or width.
Usually the height and width are defined and limited in the
T&Cs, this is in the interest of all contractual parties.
In principle the risks exist for the supplier as well as for
the ETHZ, therefore we want to keep our position in
focus. However, we will stay fair!
Jürg Häubi
Risks
| | 12.05.2014 41
Delay We buy a computer that works perfectly but was delivered 3 weeks too late.
Defective performance (Warranty)
The supplied feed switches off frequently and without cause.
Damage (Product liability / consequential damage)
A relay catches fire due to excess voltage from the supplied control system,
which spreads over to the datacenter. The ETH datacenter burns down.
Legal warranty (property rights)
A supplier sells us a software with components not properly licensed from the
manufacturer or that contain patent violations.
Jürg Häubi
Examples of Risks
| | 12.05.2014 42
In contrast to the liabilities for damage, penalties do not
need evidence of damage.
Delay (failure to fulfil the contract with regards to time)
(choose relevant milestones/ must be demanded in writing, except if automatism is agreed in the
contract)
Procedural principles(eg. T&C WV Art. 5.3/ 22.6) (Work safety regulations, working conditions and wage equality for both genders; confidentiality;
integrity clauses; …)
Performance penalties (eg. Service level agreement neglected, …)
Jürg Häubi
Penalties (eg. T&C WV, Art. 20)
| | 12.05.2014 44
Both in the case of delay and other deficiencies we`re
entitled to: Improvements (repair/ replacement)
Replacement administration (replacement through a third party at the cost
of the supplier)
Reduction (of price of purchase)
Damage compensation/ contractual penalty
Cancelation of the contract (reversal procedure)
Jürg Häubi
Rights of the ETHZ
| | 12.05.2014 45
This refers particularly to violations of rights while using
software
Usage, saving, modifying, resale, but also topics related to property
rights, patent rights , creator rights and trademarks.
In such cases one should always involve legal services
Jürg Häubi
Protective rights
| | 12.05.2014 46
Temptation of free availability!
Infection
Open source software can be licensed.
Jürg Häubi
Risks Involved with Open Source Software
| | 12.05.2014 48
Most of the future risks are determined in the planning
phase of a procurement, even undesired ones. Following
points must be clarified:
Requirements of procurement regulations with ITS PPF
Comprehensive, but not restrictive Specifications, Taking into
consideration the entire lifecycle (later maintenance/ upkeep/
expansion/ potential upgrade/ options)
Hence Acceptance procedure and conditions should be included
in later agreements with the supplier
Formulate a detailed Quantity structure and exact transcription of
the performance
Define and limit Coop. duties of the ETHZ.
Define a time plan with Milestones relevant to delay penalties.
Jürg Häubi
Planning Phase
| | 12.05.2014 49
A contract is usually signed after the tendering process is
legally executed.
The realisation phase is about:
Defending against unjustified demands of the supplier
Enforcement of valid demands of the ETHZ (deadlines, warranty
cases, contractually agreed performance, …)
If necessary, timely reminders and documenting of potential
«problems»
If necessary, to manage change contractually and in keeping with
the project tender.
To conclude, signing of the acceptance protocols
Naturally together with ensuring that the «Work» is carried
out in a contractually agreed upon manner.
Jürg Häubi
Realisation Phase
| | 12.05.2014 51
All T&C of the ETH and the IT T&C of the federal
government
http://www.fc.ethz.ch/services/einkaufen
IT procurement
http://www.id.ethz.ch/services/category/ppf
BBL Homepage
www.bbl.admin.ch
Contacts from ID-PPF
[email protected] [email protected]
[email protected] (für higher-level questions)
Legal service of the ETHZ
http://www.rechtsabteilung.ethz.ch
Jürg Häubi
Links/ Contacts
| | 12.05.2014 52
OpenSource Information
GPL und LGPL: www.gnu.org
BSD: www.bsd.org
Mozzilla: www.mozilla.org/MPL
http://de.wikipedia.org/wiki/Open-source
http://de.wikipedia.org/wiki/Open-source-lizenz
http://opensource.org/licenses
http://www.isb.admin.ch/themen/architektur/00164/
…
Jürg Häubi
Links