Software Project Failure: What Can You Do When Your IT Supplier Fails to Deliver?
When an IT supplier fails to deliver what your business expected, or a software supplier does the same, the consequences can quickly extend beyond the project itself. Delays, incomplete functionality, repeated defects and rising costs can affect operations, staff, customers and management time.
For small and medium-sized enterprises, startups and owner-managed businesses, the position can be particularly difficult where significant sums have already been invested and the business is relying on the new system to replace existing software or support future growth.
Knowing what to do next can be difficult. This guide explains the practical and legal options available when an IT supplier is failing to deliver, and when early legal advice may help protect your business’s position.
How do I know if my software project has genuinely failed?
Repeated delay is often the first warning sign. A single missed deadline does not necessarily mean that an IT project has failed. Software projects can encounter legitimate technical issues, changes in requirements or delays caused by dependencies on both parties.
The position becomes more concerning where deadlines are repeatedly moved without credible explanation or recovery plan. A supplier may have missed several go-live dates, failed to complete key functionality or continued asking for additional time without being able to explain when the system will actually be ready.
Missing functionality and unresolved defects. A project may also be failing where the software delivered does not perform important functions that the business understood were part of the agreed scope.
This can include integrations that do not work, incomplete workflows, serious defects, failed data migration or functionality that has still not been demonstrated despite substantial implementation work.
The important distinction to draw is between a project that is temporarily delayed and one where there is no longer a realistic route to successful delivery.
What should you do first when your IT supplier fails to deliver?
Establish exactly what remains outstanding. You should identify what the supplier agreed to deliver, what has actually been completed, what remains outstanding and what explanations have been given for the delay or failure. This may require reviewing the main contract together with statements of work, specifications and change requests.
The aim is to identify the specific obligations that have not been met.
Create a clear project chronology. It can become very useful having a record of the original delivery date, major project issues, decisions made by both parties and any commitments given by the supplier. This can help management understand whether the project has gradually moved away from the original agreement and whether responsibility for the problems genuinely lies with the supplier.
Is your IT supplier in breach of contract?
Start with the contract. Whether the supplier is legally in breach will depend on what they agreed to do. While some contracts contain firm milestones and delivery obligations, others may provide estimates for dates or make delivery dependent on the customer providing information or approval. This therefore means that a missed project date does not automatically establish a breach. Where the contract fixes no date at all, the law will usually imply a term that the work will be carried out within a reasonable time (section 14 of the Supply of Goods and Services Act 1982), so the absence of a date does not give the supplier an open-ended period to deliver.
The business should consider what obligations were binding, whether those obligations were met and whether any failure by the customer contributed to the problem.
Reasonable care and skill will usually be relevant. Where a supplier is acting in the course of a business, section 13 of the Supply of Goods and Services Act 1982 implies a term that its services will be carried out with reasonable care and skill, unless the contract varies or excludes that term, and any exclusion must satisfy the reasonableness test in the Unfair Contract Terms Act 1977. This can be relevant where not only was a delivery date missed but that implementation work or technical services were carried out poorly and to a low standard. It is a duty to take reasonable care, not a guarantee that the system will work, so the existence of defects does not by itself establish a breach.
What if your supplier keeps asking for more time?
It is common for a struggling supplier to ask for revised deadlines. Giving more time may be commercially sensible where there is still a realistic prospect of completing the project. Additionally, replacing a supplier can be expensive and disruptive, particularly where work has already been carried out.
However, repeated extensions should not be agreed informally. The business should understand why more time is required, what will be completed during the extension and whether the revised dates are intended to replace earlier contractual milestones. Agreeing extensions without reserving your rights in writing risks the revised dates replacing the original ones, and carrying on with the contract after a breach can be treated as affirming it, which may weaken a later right to terminate for that earlier breach.
Should you give your supplier one final opportunity to deliver?
A structured recovery plan may be preferable to immediate termination. This should set out what remains to be done and when. The supplier should be able to identify the outstanding work, the resources being allocated and realistic completion dates.
If the supplier cannot produce a credible plan, that may itself indicate that the project is no longer capable of being recovered.
When should you send a formal breach notice?
Where informal discussions are no longer producing results, a formal breach notice may be appropriate. Technology contracts commonly contain provisions requiring a party to notify the other of a breach and allow a specified period for it to be remedied before termination rights arise.
The contractual notice provisions should therefore be checked carefully and followed strictly, because a defective notice may be ineffective.
The notice needs to identify the failure. It should normally explain which contractual obligations have been breached and what the supplier is required to do to put matters right. This is often a good point to seek legal advice, particularly where termination may follow if the supplier does not remedy the position.
Can you stop paying when your IT supplier fails to deliver?
A business may understandably be reluctant to continue paying where the supplier has not delivered important parts of the project. However, withholding payment is not automatically safe. The contract may state when particular invoices become due, whether payment depends on completion of milestones and whether the customer has a right of set-off. Even where the contract is silent, the law may allow a customer to set a closely connected cross-claim against the price (equitable set-off), but that is a technical and uncertain argument, and contracts often exclude set-off expressly, and such a clause may be subject to the reasonableness test in the Unfair Contract Terms Act 1977 if it forms part of the supplier’s standard terms. Late payment can also carry interest, including statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998 where the contract does not provide a substantial remedy for late payment.
It may also allow the supplier to suspend work or services following non-payment.
Check the consequences before withholding sums. If the supplier controls business-critical data, the consequences of non-payment can be particularly serious. The business should therefore understand whether the invoice is contractually due and what rights the supplier may gain if payment is withheld.
Can you terminate the contract if your IT supplier fails to deliver?
Technology contracts commonly allow termination following certain types of breaches, particularly where the supplier fails to remedy a material breach within a specified period. There may also be circumstances where a sufficiently serious breach (a repudiatory breach) gives rise to a right to terminate under general contract law.
However, termination should not be assumed. Ending the contract without a valid right to do so can itself be a repudiatory breach by the customer, exposing it to a claim or counterclaim from the supplier.
Before terminating, the business should understand what happens next. It may still need access to data, software, technical documentation or work already completed by the supplier.
Data and system access. Management should establish what data the supplier holds, how it can be exported and whether assistance is required to migrate it elsewhere. The business should also consider any live systems or services that could be suspended when the contract ends.
How the Jonathan Lea Network can help when an IT supplier fails to deliver
Early assessment of your position. We can review the contract and project history to identify what the supplier was required to deliver and where its performance may have fallen short. This can help management understand the strength of the business’s position before deciding whether to continue with the project or prepare an exit plan.
Project recovery. Where the business still wants the project to succeed, we can help structure formal notices, revised delivery arrangements and negotiations while protecting existing contractual rights.
Termination and exit planning. Where the relationship cannot be recovered, we can advise on termination rights and help the business manage issues such as payment, data access, transition arrangements and handover to another supplier.
Frequently asked questions: IT supplier fails to deliver
If your IT supplier fails to deliver, start by establishing exactly what it agreed to deliver, what has been completed and what remains outstanding, and build a clear project chronology. Then check the contract to see whether the supplier is in breach. Depending on the position, the options include agreeing a structured recovery plan, sending a formal breach notice or terminating where there is a valid right to do so. Early legal advice can help protect your position. Repeated delay is often the first warning sign, particularly where deadlines keep moving without a credible explanation or recovery plan. Other signs include several missed go-live dates, key functionality not completed, integrations that do not work, serious defects, failed data migration and functionality that still has not been demonstrated. The important question is whether the project is only temporarily delayed or whether there is no longer a realistic route to successful delivery. Not automatically. Whether the supplier is in breach depends on what it agreed to do. Some contracts contain firm milestones and delivery obligations, while others give estimated dates or make delivery depend on the customer providing information or approval. A single missed deadline does not necessarily mean a project has failed. Check which obligations were binding, whether they were met and whether any failure by your business contributed to the problem. Where the contract fixes no date at all, the law will usually imply a term that the work will be carried out within a reasonable time, under section 14 of the Supply of Goods and Services Act 1982. So the absence of a date does not give the supplier an open-ended period to deliver. A clear project chronology, recording the original delivery expectations, major issues and the supplier’s commitments, will help show how long the work has taken. Usually, yes. Where a supplier acts in the course of a business, section 13 of the Supply of Goods and Services Act 1982 implies a term that its services will be carried out with reasonable care and skill, unless the contract varies or excludes it, and any exclusion must satisfy the reasonableness test in the Unfair Contract Terms Act 1977. It is a duty to take reasonable care, not a guarantee that the system will work, so defects alone do not prove a breach. When an IT supplier fails to deliver on time, giving more time can be commercially sensible where there is still a realistic prospect of completing the project. But do not agree extensions informally. Understand why more time is needed, what will be completed and whether the new dates replace earlier milestones. Reserve your rights in writing, because carrying on with the contract after a breach can be treated as affirming it and may weaken a later right to terminate. A structured recovery plan should set out what remains to be done and when. The supplier should be able to identify the outstanding work, the resources being allocated and realistic completion dates. A recovery plan may be preferable to immediate termination where the project can still succeed. If the supplier cannot produce a credible plan, that may itself indicate that the project is no longer capable of being recovered, and it may be time to plan an exit. It should normally explain which contractual obligations have been breached and what the supplier is required to do to put matters right. Technology contracts commonly require you to notify the other party of a breach and allow a set period for it to be remedied before termination rights arise. Check the contract’s notice provisions and follow them strictly, because a defective notice may be ineffective. This is often a good point to seek legal advice. Withholding payment is not automatically safe. Check when invoices become due, whether payment depends on completing milestones and whether you have a right of set-off, which contracts often exclude. Late payment can carry interest, including statutory interest in some cases, and non-payment may allow the supplier to suspend work or services. If the supplier controls business-critical data, the consequences can be particularly serious, so understand the contractual position before withholding sums. If your IT supplier fails to deliver, first check that you have a valid right to terminate, either under the contract or because of a sufficiently serious (repudiatory) breach, as ending the contract without one can itself be a repudiatory breach and expose your business to a claim. Then plan what happens next: what data the supplier holds, how it can be exported, whether help is needed to migrate it, and which live systems or services could be suspended when the contract ends.
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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.