Retail & Leisure

Procurement: a new pro-supplier trend

After the well publicised decision in BSkyB v EDS in which the supplier (EDS) was roundly criticised and forced to settle for enormous sums of money the High Court has looked again at IT procurement and come down firmly, this time, on the supplier’s side.

Southwark Borough Council’s £2.5million claim against software giant IBM has been dismissed.  In a pro-supplier judgment the High Court has ruled that IBM did not mis-sell software for a master data management system (MDM) to Southwark.

IBM provided software and associated consultancy services to Southwark in 2006 and 2007.  Southwark claimed that software provided by IBM, and in particular a product called Arcindex, was unsatisfactory and otherwise unfit for purpose.  Both the IBM and the Arcindex software were installed but Southwark stopped using the software in 2007 and then brought a case against IBM to recover its losses.

Southwark’s claim initially included a number of complaints but during trial the claim was refined to rely on Section 14 of the Sale of Goods Act 1979 and an express term within the contract of the need for “satisfactory quality”.

Ultimately Southwark’s arguments failed and IBM was found not to be liable. The Court rejected the proposition that the meaning of “satisfactory quality” stated in the contract should be interpreted to be given its Sale of Goods Act meaning (that the interpretation of “quality” should include fitness for purpose).

The express warranty, that the goods were of satisfactory quality and that they conformed with the specifications set out in the contract, had to be read in conjunction with what the contract actually called for.  This was merely conformity with the specification and this was not in dispute between the parties. The Court added that when assessing satisfactory quality under the Sale of Goods Act the whole contractual context should be considered and should only be applied in “appropriate cases”.

Southwark’s technical team had fully investigated the software and its specifications before deciding to make the purchase and it was held that the team understood what the software could provide. IBM had not recommended the software.   A joint expert report stated that the software provided functioned as described in the user manual.

The Court observed: “if parties to a contract spell out what the software must do or be it will be satisfactory if it achieves what the contract dictates it should”. 

The Court also noted: as was said colloquially at one stage during the trial, Arcindex does “what it says on the box”. An analogy is the potential car purchaser who might want an off-road vehicle but, having looked at the brochure for an on-road vehicle, says to the salesman “that’s what I want” and buys that vehicle. There will be no cause of action against the garage that the car is no good off the road. The salesman will reply, with justification: “you got exactly what you asked for”. That is essentially what has happened in Southwark’s case.

The common practice of obtaining an express warranty of satisfactory quality in addition to compliance with the specifications may not increase a supplier’s obligations because the former is limited by the latter. As stated by the Judge: “In my judgment, Southwark got by way of Arcindex exactly what its then team knew that they were getting and what it decided that it wanted and needed within its budgetary constraints”.

For information on any of the issues raised in this article please contact Owen Williams