IT Projects in Crisis

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Deadlines slip, the budget is spent and the software does not work. In this phase a few weeks decide whether an IT project can still be saved and whether you will be able to prove your claims later. We act for customers and IT service providers in project crises, from the first assessment to expert opinions, conciliation or litigation.

Early warning signs in IT projects

• Milestones are postponed repeatedly without the cause being documented
• Test results are missing or only reported verbally
• Requirements change by email or in the ticket system without any effect on price or schedule
• Key people on the supplier’s side are replaced
• Invoices exceed the agreed amounts with reference to alleged change orders
• Status reports show only green lights although the business departments report problems

The earlier we are involved, the more options there are. Litigation is the last option, not the first.

Securing evidence

In an IT dispute, the party that can document what was agreed and what was delivered wins. Secure the contract, offer, specification and all amendments, minutes of steering committee and regular meetings, tickets and backlog with history, test records, acceptance declarations, invoices and the relevant emails. Exports from Jira, Confluence or Git should be complete and time-stamped before access is withdrawn.

Notice of defects and setting deadlines

Defects must be described specifically: which function, which behaviour, which deviation from what was agreed. General statements such as „the system is unstable“ are not enough. Under the German Civil Code (BGB), withdrawal, price reduction or damages in lieu of performance generally require a reasonable deadline for remedying the defect (sections 634, 636, 323 and 281 BGB). We draft notices of defects that will hold up in court and set deadlines a court will regard as reasonable.

Change requests and additional charges

Many disputes turn on whether a service was within the original scope or must be paid for separately as a change request. The specification and the agreed change procedure are decisive. If a change was implemented without a written agreement, correspondence and minutes matter. We review claims for additional payment and negotiate them with the aim of keeping the project running.

Termination under sections 648 and 648a BGB

Under a contract for work, the customer may terminate at any time without cause (section 648 BGB). The supplier then keeps its claim to the agreed price less saved expenses; the law presumes 5 per cent of the price for the part not yet performed. This can be expensive.

Termination for good cause under section 648a BGB is possible where continuing until completion is unreasonable, for example in the case of grossly deficient performance or a final refusal to perform. The supplier is then only paid for the work performed. Termination should be threatened in advance, the reason documented and a joint assessment of the work status requested under section 648a(4) BGB. If you cannot prove good cause, the termination risks being treated as termination without cause.

Acceptance and payment

Acceptance makes payment due, reverses the burden of proof for defects and starts the limitation period. In a crisis, do not sign an acceptance record without reserving defects. Conversely, a supplier who has completed the work can bring about deemed acceptance under section 640(2) BGB. Payments may generally be withheld up to twice the cost of remedying the defect (section 641(3) BGB).

Expert opinions and independent evidence proceedings

In the end, an expert decides whether software is defective. A party-appointed expert opinion helps in negotiations and in assessing the prospects of a lawsuit. Independent evidence proceedings under sections 485 et seq. of the German Code of Civil Procedure (ZPO) record the state of the system in a form usable in court, before it is developed further or shut down, and suspend the limitation period. They are particularly useful when a new supplier is to take over.

Conciliation, arbitration or litigation

IT cases before the state courts often take years. Depending on the contract and the parties‘ interests, mediation, conciliation or arbitration with technically experienced arbitrators may be an option. If the contract contains an arbitration clause, a claim before the state courts is inadmissible if the other side objects. We review the clauses and recommend the route that fits the amount in dispute, the evidence and the time pressure.

Restarting with a new supplier

If you change supplier, you need the source code, documentation, access credentials and the rights of use in the work done so far. We secure handover, arrange the transition and draft the follow-on contract to reflect the lessons of the failed project. The new supplier should only continue development once the defective state has been documented.

FAQs

May I withhold payments?

If the defects are justified, yes, generally in a reasonable amount. Withholding without reason gives the supplier a right to refuse performance or to terminate. Have the amount checked beforehand.

How long does an IT lawsuit take?

At first instance, with an expert opinion, often two years or longer. That is why it is worth trying to negotiate a solution or using a faster procedure.

When are warranty claims time-barred?

For software under a contract for work, generally two years after acceptance (section 634a(1) no. 1 BGB), unless the contract provides otherwise. Without acceptance, the standard limitation period applies.

Related topics

• Litigation and arbitration
• Software, SaaS and cloud contracts
• Contracts for agile projects (in German)
• Mediation in IT law (in German)
• Interim injunctions (in German)