IT Contract Disputes: A Practical Guide for Businesses

Technology and software disputes, including IT contract disputes, can become commercially serious very quickly. A business may be dealing with an implementation that has fallen behind schedule or software that does not work as expected. It may face unexpected additional charges, disputed project scope, repeated service failures or a breakdown in the relationship with a supplier.

For SMEs, startups, technology companies and owner-managed businesses, these disputes can be particularly disruptive. Software is often central to sales, finance, operations, customer management or internal reporting. Problems with a major system can therefore affect the wider business long before anyone begins thinking about legal action.

The key question is usually not simply whether something has gone wrong. It is what the contract required, who is responsible and what the practical options are. It is also how the business can protect its position without making the situation worse.

This guide considers business-to-business technology and software disputes that commonly arise under the law of England and Wales.

What types of IT contract disputes do businesses encounter?

Technology disputes can arise at almost any stage of a commercial relationship. Some begin during the process of purchasing goods, services or other works. In these cases, the customer says the supplier gave it an inaccurate picture of what a product or service could achieve. Others arise during implementation because of delay, defects, scope disagreements or disputed change requests. Longer-term contracts can also give rise to disputes over service levels, licence fees, support obligations, renewals, data access, suspension rights or termination.

Common IT contract disputes

Common disputes concern what functionality the agreed scope included and whether software meets the specification. Others concern responsibility for delay and whether additional work should attract further charges.

In longer-term software as a service, cloud and managed-service arrangements, disputes may instead concern licence fees, unpaid invoices, service suspension, access to data, intellectual property or termination rights. A significant dispute will often involve several of these issues at the same time.

Which documents form part of the agreement in IT contract disputes?

Start with the contract. When a dispute develops, the starting point is to establish what the supplier was actually required to do. That may involve more than the main signed contract. The agreement may include a master services agreement, statement of work, order form, specification, project plan, licence terms, service levels and later change requests. There may also be important documents from before the parties signed the agreement. Examples are proposals, tender responses or statements about the capabilities of the software. Pre-contract documents are not automatically part of the contract, and many agreements contain entire agreement clauses. But they can still be legally relevant, as explained below. This means identifying which documents form part of the agreement, which take priority if they conflict and whether the parties subsequently changed the requirements. This can be particularly important where the project team has been working informally for some time. The written contract then no longer reflects how the team has actually managed the project.

Where the contract is silent, the law may imply some terms. A supplier providing services in the course of business is generally subject to an implied term to carry them out with reasonable care and skill (section 13 of the Supply of Goods and Services Act 1982). That is not the same as a guarantee that the software will be fit for the customer’s purpose. Such a guarantee will usually need to be an express term.

Disputes about scope and requirements

Scope is one of the most common areas of disagreement in technology projects. A supplier may say that a particular feature, integration or workflow was never included in the original price. The customer may say that the requirement was fundamental and was discussed throughout the procurement process. Furthermore, the contract may contain a formal change-control process, but project teams do not always follow it consistently. Where changes are agreed informally, the legal analysis may turn on variation, waiver or estoppel. Many contracts also provide that variations must be in writing. The courts will generally give effect to those clauses (Rock Advertising Ltd v MWB Business Exchange Centres Ltd [2018] UKSC 24). However, the courts may sometimes prevent a party from relying on them.

The key question is whether the work was within the original scope or genuinely additional. That requires a review of the specification, supplier proposal, statements of work, project correspondence and any agreed variations. Where scope is unclear, it is useful to identify the specific business requirement in dispute rather than relying on broad statements that the system “does not work”.

Delay and missed milestones

Delay can create significant commercial pressure. A missed implementation date may require the business to keep an old system running, pay for additional consultants, delay a launch or continue using manual processes. Responsibility will depend on the contract. Some dates are firm contractual milestones, while others are estimates or depend on the customer meeting its own obligations. The supplier may also argue that the customer caused or contributed to the delay. That makes the project record important. A clear chronology can help determine where responsibility lies. It should show when the project needed decisions, when each side provided information and how the parties agreed revised dates. The practical issue for management is often whether the delay is temporary and recoverable or whether it indicates a deeper problem with the supplier’s ability to complete the project.

Change control and unexpected additional charges

Technology projects frequently generate disputes about additional fees. The supplier may say that the original scope has changed and that further work must be paid for. The customer may say the additional work was necessary only because the original implementation was defective or because the supplier misunderstood the requirements. Before agreeing revised statements of work or further payments, the business should establish what the parties originally agreed and what changed. It should also check whether anyone properly authorised the additional charges. A document intended to keep the project moving may also affect existing claims if it changes the parties’ obligations or resolves earlier disagreements, unless the business expressly reserves its rights.

Testing, acceptance and sign-off

Acceptance provisions can become important when the supplier has delivered a system but the customer does not believe it meets the agreed requirements. The contract may include formal testing procedures or acceptance criteria. Problems arise where the business begins using the software because it has little practical alternative, while the supplier argues that continued use amounts to acceptance. The supplier may also argue that continued use and payment amount to affirmation of the contract. This can weaken a later right to terminate for breaches the business already knew about. The business should therefore understand what contractual effect is attached to sign-off, acceptance certificates and commencement of live use. Senior managers should be cautious about approving milestones simply to maintain project momentum where significant issues remain unresolved.

What if the supplier said the software could do something that it cannot?

Software disputes sometimes begin with promises made during the sales process. A supplier may have said that its platform could support a particular workflow, integrate with another system or meet an important business requirement. A statement made before signing may amount to a misrepresentation under the Misrepresentation Act 1967. This applies if it was a false statement of fact (rather than an opinion or general sales enthusiasm) that induced the customer to enter the contract. In some cases it may amount to a collateral warranty. Whether those statements create legal rights will depend on what the supplier said, whether the customer relied on it and the terms of the final agreement. Technology agreements often contain entire agreement or non-reliance wording designed to limit the effect of earlier sales discussions. Such wording is not necessarily conclusive, because an attempt to exclude liability for misrepresentation must satisfy the statutory reasonableness test.

Businesses should therefore retain proposals, tender responses, demonstrations and key pre-contract correspondence rather than looking only at the final signed agreement.

Service levels and ongoing performance disputes

Businesses can face recurring downtime, poor support, slow response times or repeated failures to meet agreed service levels. Although the contract may provide service credits, persistent failures can also affect termination rights or lead to wider claims. Whether service credits are the business’s only remedy for particular failures depends on the wording of the contract. The important question is whether the failures are isolated incidents or evidence that the supplier is not providing the service promised. Where those failures have caused the business financial loss, it may also be possible to claim some or all of that loss from the supplier.

Disputed invoices and withholding payment

Payment disputes often emerge alongside wider performance problems. The customer may believe that invoices should not be paid because the supplier has not delivered. The supplier may say that payment obligations remain due regardless of the dispute. Before withholding substantial sums, the business should check the contract carefully. It should understand whether the supplier has achieved the relevant milestone and whether there are rights of set-off. A legal or equitable right of set-off generally depends on the nature of the cross-claim, and many contracts exclude set-off altogether. The business should also understand whether non-payment gives the supplier the right to suspend services or terminate. Withholding payments may be justified. But the business should understand the contractual consequences before using it as leverage. A clause excluding set-off may itself be subject to the reasonableness test under the Unfair Contract Terms Act 1977.

Suspension of software or hosted services

Suspension can be one of the most urgent issues in a technology dispute. A supplier may threaten to suspend access because of unpaid invoices or another alleged breach. Where the software is central to the business, that threat can create immediate operational risk. The business should review the contract to establish whether the supplier has a suspension right, what triggers it and whether it must give notice. The business should also consider what would happen if access were actually removed. Where the business needs to act urgently, it may be possible to apply to the court for an interim injunction. However, the court will expect the business to act quickly and to show that damages would not be an adequate remedy.

Data access and exit arrangements

Data is often one of the most commercially important issues when a technology relationship breaks down. A business may be able to replace a supplier, but only if it can recover its data in a usable form. The contract should therefore be checked for provisions dealing with data ownership, export, return, deletion and transition support. These issues should be considered before termination, not afterwards. The business should understand whether the supplier must assist with migration and whether it can impose charges. It should also know how long access will continue after the contract ends. Where the system holds personal data, UK GDPR obligations will also be relevant. The business will usually remain the data controller, and the contract should deal with what the supplier, as processor, must do with the data when the relationship ends. A dispute that appears to be about unpaid fees can quickly become more serious if access to operational data is at risk.

Intellectual property and software ownership

Ownership issues commonly arise with bespoke development. A customer may assume that because it funded the development, it owns the resulting code. In general, copyright in software belongs first to its author or the author’s employer, so the customer will usually own it only if the contract assigns it, although a licence to use it may sometimes be implied. The contract will therefore usually be decisive. It may distinguish between the supplier’s pre-existing technology, newly developed material, third-party components and customer-owned material. The customer may receive ownership of some elements but only a licence to use others. This becomes particularly important if another developer needs to maintain, complete or replace the system. Businesses should therefore understand what intellectual property rights they actually have before ending the relationship with the original supplier.

Termination: when can you bring the relationship to an end?

Termination is often considered when confidence in the supplier has broken down. However, it carries risk. Technology contracts usually contain specific termination provisions and may require a material breach, written notice and an opportunity to remedy the problem. If a business terminates without a valid right to do so, the supplier may treat the termination itself as a repudiatory breach by the customer. This could expose the business to a claim for damages. Before terminating, the business should therefore consider whether it has the legal right to do so. It should also consider how the parties will unwind the relationship in practice. Termination should form part of an exit strategy rather than be treated as a standalone legal step.

How a technology contract can come to an end

A technology contract can come to an end in several ways. It may be performed in full or reach its fixed expiry date. The parties may agree to end it by mutual agreement, ideally recorded in a written settlement that deals with money already paid or owed. The contract may also contain an express termination clause. This can allow termination for convenience on notice, or for cause such as material breach or insolvency, usually subject to notice and any opportunity to remedy.

Separately, the common law allows an innocent party to terminate for repudiatory breach. This arises where the other party clearly shows that it will not perform the contract (renunciation), or where a breach deprives the innocent party of substantially the whole benefit of the contract. Not every breach is repudiatory, and a repudiatory breach does not end the contract automatically. The innocent party must choose whether to accept the breach and end the contract or to affirm it and continue. Delay or continued performance after the breach can be treated as affirmation. In rare cases a contract may also be discharged by frustration. However, that is difficult to establish and unlikely where a project has simply become more costly or difficult.

Does a liability cap limit what your business can claim in IT contract disputes?

A liability cap can limit what your business is able to recover, but your business should not simply accept it at face value. Technology contracts often contain an overall financial cap and may also exclude particular categories of loss. However, the wording needs careful consideration because different limits may apply to different types of claims.

There are also some liabilities that a supplier may not be able to exclude or restrict at all. Other exclusions or limitations may only be effective if they satisfy the applicable legal tests. For example, a supplier cannot exclude liability for death or personal injury caused by negligence, or liability for fraud. Other exclusions of liability for negligence (which includes a failure to exercise reasonable care and skill in performing a contract) are subject to the Unfair Contract Terms Act 1977 and its reasonableness requirement. The same test can apply to limitations contained in a supplier’s written standard terms of business.

The importance of evidence in IT contract disputes

A clear record of what was agreed and what went wrong can materially strengthen the business’s position. Useful evidence may include contracts, specifications, project plans, change requests, testing records, meeting minutes, issue logs and key correspondence. It is also helpful to prepare a simple chronology while events are still recent. That can identify who made key decisions, when deadlines changed and what explanations were given.

Financial evidence should also be preserved. If the dispute later involves a claim, the business will need to demonstrate the impact of the supplier’s alleged failures rather than relying on broad estimates.

Should you try to resolve IT contract disputes before going to court?

In many cases, yes. A technology dispute does not necessarily need to end in court proceedings. Commercial discussions can address issues that litigation cannot solve quickly, such as continued system access, data migration, technical handover or transition assistance. A negotiated solution may involve revised delivery commitments, fee adjustments, cancellation of disputed invoices, termination arrangements or financial compensation.

Additionally, negotiating before going to court can produce a quicker and more beneficial outcome. It can give the parties more control over the outcome and may resolve issues that a court judgment cannot address easily. Mediation can also be effective by helping the parties explore whether they can reach an agreed solution. The mediator does not normally decide the dispute or impose an outcome. Instead, the parties remain in control of whether they reach a settlement.

Even where parties cannot resolve everything, negotiation or mediation may reduce the number of issues that a court ultimately needs to decide. This can reduce legal costs and allow both sides to focus on the points that genuinely remain in dispute.

Courts also expect parties to consider alternative dispute resolution before issuing proceedings. The Practice Direction on Pre-Action Conduct requires parties to exchange information and consider ADR. The court can also order ADR, or take an unreasonable refusal to engage into account when deciding costs.

When should your business obtain legal advice or consider formal action?

Legal advice can be useful well before a technology dispute reaches the point of litigation. This is particularly so where the business is considering termination, withholding substantial payments, signing revised terms or responding to threatened suspension.

Formal proceedings may become necessary where the financial stakes are significant, the supplier refuses to engage or the business needs to protect urgent legal rights. Before proceeding, the contract should be checked for any escalation or arbitration requirements. Where the contract requires arbitration, the court may stay court proceedings brought in breach of that agreement. The parties may also need to follow escalation or ADR clauses first. If the dispute does proceed to court, the Technology and Construction Court commonly hears technology and software disputes.

The business should also weigh the likely recovery against the cost, management time and commercial disruption involved. A strong legal case is not always worth pursuing if the likely outcome does not justify those risks.

Is there a time limit for bringing an IT or software contract claim?

Legal claims are subject to limitation periods, and contractual rights may also depend on much shorter notice, escalation or termination deadlines.

For many claims for breach of a simple contract in England and Wales, the usual limitation period is six years from when the relevant cause of action accrued. Where a deed contains the obligation, the period may be 12 years. Claims in misrepresentation or negligence are also generally subject to a six-year period, although the starting point may differ. However, identifying when time began to run can be more complicated where a project involved several breaches over an extended period.

The contract itself may create much more immediate deadlines. For example, a business may need to dispute an invoice within a particular period, notify the supplier of a breach, allow the supplier time to remedy a breach or exercise termination rights in a prescribed way.

Where a significant project has been in difficulty for some time, the business should therefore check limitation and contractual notice requirements early. It should not wait until negotiations have completely broken down.

How the Jonathan Lea Network can help with IT contract disputes

At The Jonathan Lea Network, we advise small and medium-sized enterprises, startups, technology companies and owner-managed businesses on significant software, IT and technology contract disputes. We can become involved at different stages. In some cases, the priority is to understand the contract and strengthen the business’s position while it continues working with the supplier. In others, the relationship has already broken down and the focus is on termination, protecting access to data and systems, responding to disputed invoices or negotiating a commercial exit.

Where appropriate, we can also advise on liability and potential claims, conduct negotiations, assist with identifying and appointing an appropriate mediator and pursue or defend formal proceedings. Getting advice does not necessarily mean escalating the dispute. Early input can often help management understand its leverage, avoid taking steps that weaken the contractual position and decide whether the best commercial outcome is to repair, renegotiate or exit the relationship. Our team can consider which strategy can help achieve both your commercial and your legal goals.

If your business is dealing with a significant software or IT contract dispute, you can contact our team to discuss the circumstances and the practical options available.

Frequently asked questions: IT contract disputes 

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This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.