IT projects are rarely simple. Think of implementing an ERP system, developing bespoke software or migrating to the cloud. Such projects often have long lead times, many interdependencies and considerable financial stakes. Delays and defects can therefore have far-reaching consequences.
Clients may lose turnover, incur additional costs or suffer reputational harm. For IT suppliers, claims of this kind represent a significant financial risk. Who bears which loss depends first and foremost on the contract and the applicable general terms and conditions.
Where the contract gives no clear answer, the rules of the Dutch Civil Code apply. In practice five questions tend to be decisive:
- Is there a failure to perform?
- Can that failure be attributed to the supplier?
- Is the supplier in default?
- Which losses qualify for compensation?
- Does a contractual limitation of liability hold?
In brief
- The contract and the general terms and conditions largely determine who is liable.
- Where there is a failure to perform, it usually has to be assessed whether the supplier is in default.
- General terms often contain a liability cap and an exclusion of consequential loss.
- A penalty clause can make loss from delay easier to establish.
- A strict deadline can mean that no notice of default is required.
- Clients and suppliers alike are well advised to record arrangements, changes and communications carefully.
When is an IT supplier liable?
The principal basis is breach of contract under Article 6:74 of the Dutch Civil Code. Any failure to perform an obligation obliges the supplier to compensate the loss the client suffers as a result. Think of software that does not function as agreed, a migration causing data loss, or a project not completed within the agreed period.
The failure must be attributable to the supplier. In the event of force majeure it need not compensate the loss, although the client may in certain cases still rescind the contract.
Default is often relevant as well. Under Articles 6:81 and 6:82 of the Dutch Civil Code, default arises once the client has given the supplier written notice granting a reasonable period for performance which has then expired unused. Default matters a great deal for many claims based on delay or defective performance: without it, damages or rescission cannot in some circumstances be claimed straight away.
The client does not have to serve a notice of default in every case. Where performance has become permanently impossible, or the supplier's conduct shows that a reminder would be pointless, default arises immediately.
Alongside breach of contract, liability may rest on tort under Article 6:162 of the Dutch Civil Code. That basis matters above all for parties with no contractual relationship with the supplier, for instance where an error causes personal data of the client's own customers to leak. Within the contractual relationship, tort generally serves as a supplementary basis.
Which losses qualify for compensation?
Direct loss stands in immediate and direct connection with the failure. Examples are the cost of repairing defective software, the cost of a replacement service provider, and reasonable costs of establishing the cause and extent of a defect.
Indirect loss, also called consequential loss, does flow from the failure but does not count as its immediate consequence. Think of lost profit, reputational harm towards the client's own customers, missed savings and loss from business interruption. It is precisely these heads that run high in practice, often far exceeding repair costs or the contract value.
Standard IT terms generally exclude consequential loss. Dutch courts respect such an exclusion in principle, freedom of contract being the rationale, certainly between professional parties. An exclusion of consequential loss may in some circumstances be set aside, for instance where the clause is unreasonably onerous within the meaning of Article 6:233 of the Dutch Civil Code, or where reliance on it would be unacceptable according to standards of reasonableness and fairness under Article 6:248. Those thresholds are high.
Do not simply assume, therefore, that substantial business losses will be compensated, even where the failure is obvious. When entering into the contract, look critically at the definitions of direct and indirect loss. Expressly designate the heads of loss that matter to you, such as business interruption costs up to a certain maximum, as direct loss.
What do limitations of liability mean?
Standard general terms are widely used in the IT sector, the most common being the NLdigital Terms. The NLdigital Terms 2025 succeed the 2020 edition and add chapters on compliance, cybersecurity, data sharing, artificial intelligence and online platforms, among others. The balance between supplier and customer has barely shifted. Note that the 2020 terms remain in force where the parties agreed them, so always check which version applies to your contract.
These terms limit the supplier's financial exposure in three ways. First, through a liability cap per event, tied to a multiple of the annual fee or the contract value and often combined with an absolute annual maximum. Second, through an exclusion of consequential loss. Third, through exceptions in which the limitation loses its effect.
A limitation of liability generally offers no protection in cases of intent or wilful recklessness on the part of the supplier's management. Where management acted irresponsibly in full knowledge, or was aware of a considerable risk and accepted it regardless, the supplier cannot successfully invoke the contractual cap.
In addition, a clause may be reviewed under Article 6:233, and reliance on it may fail under Article 6:248. In practice these are high thresholds, certainly where both parties are professionals who could negotiate on equal terms. They do give clients an additional line of defence in manifestly unreasonable situations.
What are the consequences of delay?
Delay is one of the most common sources of dispute in IT projects. The legal consequences depend on whether the parties agreed a strict deadline.
A strict deadline is one which the parties expressly agreed will trigger default if exceeded. Under Article 6:83(a) of the Dutch Civil Code, default then arises without a separate notice of default, provided the deadline genuinely is a strict one. Clients can therefore gain a great deal from recording such a deadline expressly.
Where no strict deadline was agreed, a timely and specific written notice of default is of considerable importance. State which performance is still required and within what reasonable period.
Penalties and rescission
To settle the consequences of delay in advance, parties often include a penalty clause, governed by Articles 6:91 to 6:94 of the Dutch Civil Code. The supplier then owes a predetermined sum if a deadline is exceeded, for instance a percentage of the contract value per week of delay. The advantage: the client need not show what loss it actually suffered, which is difficult in practice.
The penalty replaces the statutory right to damages in principle. If you also want to be able to claim actual loss in so far as it exceeds the penalty, record that expressly. No penalty is due where the delay cannot be attributed to the supplier. Finally, the court may reduce an agreed penalty under Article 6:94 where fairness manifestly so requires, although courts apply that power sparingly.
Alongside or instead of a penalty, the client may rescind. Rescission for late delivery in principle requires the supplier to be in default first, unless a strict deadline was agreed.
Rescission and damages are not mutually exclusive. Article 6:277 confers, alongside or instead of rescission, a right to compensation for the loss the client suffers because the contract is rescinded rather than performed by both parties. That claim remains subject to any contractual limitations of liability.
Practical points for clients
- Record milestones and acceptance criteria in advance, based on clear and measurable specifications.
- Where possible, tie a strict deadline to a penalty clause, so that exceeding it triggers both default and a penalty.
- On threatened or actual delay, send a written notice of default in good time, with a reasonable period.
- Do not simply accept the supplier's standard terms. The liability cap and the definition of direct and indirect loss are often negotiable, certainly where the financial stakes are high.
- Name the heads of loss that particularly matter to you, so they do not fall under excluded consequential loss.
Practical points for suppliers
- Keep careful project records. In a dispute these are your most important means of defence.
- Document changes to the scope of the project, also known as scope creep, continuously and in writing.
- Record the extent to which the client meets its duty to cooperate. Where necessary input, decisions or testing capacity fail to materialise, there may be creditor's default within the meaning of Article 6:58 et seq., which can limit or remove your liability for delay.
- Flag delay attributable to the client immediately and in writing.
Instruments that prevent disputes
Both parties benefit from arrangements that reduce the risk of a dispute:
- Source code escrow: an arrangement under which the source code is held by an independent third party, so the client retains access if the supplier becomes insolvent or fails to perform.
- Detailed acceptance test protocols, objectively establishing when a delivery has succeeded.
- Phased invoicing, tied to functionality actually delivered and accepted rather than to the passage of time.
Conclusion
The outcome of a liability dispute depends heavily on the facts: the exact wording of the contract and the general terms, the nature of the failure, and how the parties communicated. Published case law on this subject is accordingly highly fact-specific.
Are you facing delay, defective delivery or a dispute about liability? Timely legal advice can help you determine your position and next steps. Law & More advises both clients and IT suppliers and is available for a no-obligation discussion.
Frequently asked questions
Below we answer the questions we are asked most often on this subject.
When is an IT supplier liable for damage?
An IT supplier may be liable where it fails to perform its contractual obligations and that failure can be attributed to it. Think of software that does not function as agreed, data loss during a migration, or an agreed deadline being exceeded. The contract and the general terms may limit the extent of that liability.
Do I have to serve my IT supplier with a notice of default first?
Often, but not always. A notice of default is generally required where the supplier can still perform. Where performance has become permanently impossible, or a strict deadline applies, default can arise without one. Check the contract and draft any notice specifically.
Can an IT supplier be liable without a contract?
It can be, in certain circumstances, on the basis of tort. This is particularly relevant for third parties who suffer loss without being party to the contract between client and supplier.
What is the difference between direct and indirect loss?
Direct loss stands in immediate connection with the failure, such as repair costs or the cost of a replacement service provider. Indirect or consequential loss covers matters such as lost profit, reputational harm and business interruption. Always check how the contract defines these terms.
Does a liability cap always hold?
No. The effect of a limitation of liability depends on the wording of the clause and the circumstances of the case. Intent, wilful recklessness and manifestly unreasonable application may all be relevant.
Is consequential loss compensated?
Usually not. Standard IT terms generally exclude consequential loss and that exclusion is respected in principle. If you want particular heads covered, expressly designate them as direct loss when concluding the contract.
What is a strict deadline?
A deadline which the parties expressly agreed will trigger default if exceeded. No separate notice of default is then required, provided it genuinely is a strict deadline. Record it in as many words.
What does a penalty clause achieve on delay?
You then need not show what loss you actually suffered. The penalty does replace the statutory right to damages unless you expressly agree otherwise, and the court may reduce an excessive penalty.
Can I claim damages in addition to rescission?
Yes. Alongside or instead of rescission there is a right to compensation for the loss you suffer because the contract is rescinded rather than performed. Contractual limitations of liability continue to apply.
How does an IT supplier protect its position?
Through careful project records. Document changes to the scope of the project and record when the client fails to supply necessary input, decisions or testing capacity in time. That can limit or remove your liability for delay.
Which arrangements prevent disputes?
Clear acceptance criteria and acceptance test protocols, phased invoicing tied to accepted functionality, and source code escrow in case the supplier drops away. Make those arrangements when entering into the contract.
Do you have a dispute with an IT supplier, or would you like an IT contract reviewed? Our IT lawyers are happy to help.
