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The revised Civil Code, the first overhaul of the law of bonds in about 120 years, came into effect on April 1, 2020. The amendment has caused a new firestorm in the IT industry in that it effectively extends the period in which user companies can claim free repairs and compensation for information systems delivered by IT vendors. Major IT vendors and industry associations have begun to respond to the new law, but there is a risk that system development costs will "skyrocket.
The revised Civil Code was passed by the Diet in 2017. The revised Civil Code was passed by the Diet in 2017, and is the first time in about 120 years that the Law of Obligations, which sets out rules for "contracts" for sales, purchases, and services, has been fundamentally revised. Along with the construction industry, the IT industry will be the most affected, with both IT vendors and user companies needing to take action.
User companies will be able to claim free support for up to 10 years.
There are two main types of system development contracts between user companies and IT vendors: contracting, in which the IT vendor is obligated to complete the deliverables, and quasi-delegation, in which the user company pays for the design, programming, and other work. In the case of quasi-delegation, the IT vendor is not obligated to complete the work. The main difference between contracting and quasi-delegation is whether the work is intended to be completed or not.
Of these, IT vendors are bracing themselves for the impact on contracting. If the Civil Code is amended to revise the content of outsourcing contracts, it will effectively extend the period in which a user company can request that an IT vendor fix a bug in its system free of charge. IT vendors are shivering at the prospect of this revision.
Table Main Points of the Civil Code Amendment
It is likely to cause confusion in contracts and practices of system development.
Form of Contract Changes Overview
Contracting term "defect" has been removed and replaced with "non-conformance".
The period during which a user company can request free system upgrades, etc. The period was one year from the date of delivery of the system, but it is now one year from the date of knowledge of contract non-conformity. However, the maximum period is 10 years from the date of delivery.
Right for IT vendors to claim remuneration Even if the system is not completed, remuneration can be claimed if certain requirements are met.
Quasi-delegated contract type In addition to the existing "percentage of performance type" contract, a "completion type" contract was added in which remuneration is paid for results achieved.
Related article: Civil Code revised for the first time in 120 years, the scope and duration of responsibility for system development will change like this
The current Civil Code stipulates a period of one year from the date of delivery of the system for claiming free system improvement for "defects". On the other hand, the revised Civil Code changes the period to one year from the date of knowledge of "contractual non-conformity," which is almost the same meaning as the conventional defect. In addition, there will be a case where the user company can request free modification of the system for up to 10 years after the system is delivered.
This means that even if the user company finds a bug nine years after the delivery, the IT vendor will have to agree to repair the system free of charge. This is expected to increase the cost of response.
User companies can't just be happy that the free support period has been extended, because if IT vendors estimate development costs by factoring in the risk of prolonged free support, their fees may increase.
If IT vendors have to increase the cost of maintaining a system that takes into account long-term risks, the price of the system will rise. As a result, the benefits to the client side may be small," said NTT Data's public relations manager. However, it is not clear whether user companies will accept the price increase.
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