The recent problems experienced by Finish Line should be instructive to all users and providers of technology products and services. Based in Indianapolis, Finish Line operates as a specialty retailer of athletic shoes, apparel, and accessories in the U.S. Public reporting on the company’s Q3 earnings and sales acknowledged a problem with deployment of a new warehouse and order management software system which did not perform in the anticipated manner. Stores sales dropped 5.8%, missing estimates of a 1.4% increase due to the disrupted supply chain issues that failed to maintain adequate inventory to meet demand in its stores. In addition to the financial consequences, the company replaced its CEO.
FisherBroyles is not involved in this matter however, in our experience with similar matters, such situations often result in major litigation between (among others) customer and vendor, and often claims by shareholders of the customer.
The matter underscores the need for thorough attention to contracts for such engagements on the part of both customers and vendors. Customers will want to have addressed topics such as:
- Project definition;
- Payment milestones tied to performance and functionality – i.e. at least some payment withheld until system goes live and performs in intended manner;
- Warranties as to system performance such as service level agreements for load and processing time;
- Indemnification for third party claims;
- Liability and remedy limitations; and
- Vendor insurance coverage.
Vendors will need to address customer concerns regarding the above, as well as:
- Intake screening to facilitate risk/reward balance;
- Liability limitations and disclaimers for the same purpose;
- Procurement of its own insurance;
- Proper limitation of project definition where commercially reasonable efforts are all that is realistic; and
- Requirement for timely customer cooperation in general and with respect to rectifying of specific problems.
For additional information on the subject matter of this alert, please contact any of the following FisherBroyles partners: