IT contracts — dealing with the risk of supplier insolvency

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The collapse of systems integrator and reseller 2e2 in January highlighted the danger for clients of companies such as 2e2 and focused attention on how to deal with this type of situation. At a recent Shoosmiths event, data, IT and banking lawyers shared practical experience of the risks and potential remedies associated with the insolvency of IT suppliers.

Main risks discussed included:

  • heavy reliance on one supplier and lack of contingency arrangements if that supplier fails — 1,800 IT sector organisations became insolvent from 2009-11
  • rights of administrators to refuse to perform contractual obligations of an insolvent supplier
  • lack of appreciation in the client’s organisation of the critical applications provided by suppliers, which can lead to paralysis following an insolvency event
  • concern that users do not understand the vulnerability of cloud-based offerings…

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