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Litigation frenzy driving IT contractors under

Insurance Age

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A spiralling cycle of litigation against independent IT contractors is forcing many firms out of business as they try to cope with the costs of fighting lengthy legal battles.

Even where the consultant is not at fault, the cost of specialist legal representation and expert evidence can run into hundreds of thousands of pounds to defend a legal action arising out of a mistakes such as the accidental erasure of a client's hard drive.

According to recent research, the number of professional indemnity claims made by small IT consultants has soared by more than 40 per cent in the last four years as dissatisfied clients increasingly resort to legal action.

The research, conducted by specialist insurance firm Hiscox, found that the size of claims is rising as well as their frequency. This placed greatest pressure on smaller consultants who may not have the resources to fight protracted legal battles.

Examples of recent slip-ups by small consultants the study found had recently resulted in claims include: accidentally wiping a client's data, supplying software that infringed someone else's intellectual property rights, failing to integrate a new system and delivering a system that did not meet the client's brief.

The largest of these legal actions was for a one-man consultancy, the client of which initially sued for damages in excess of £3 million, though this was subsequently reduced.

In May 2003 alone the insurer said that it handled claims against small IT contractors with a combined value of almost £5 million.

Sam Franks, product expert for IT consultants at Hiscox, warned: "Clients are becoming more litigious, with technology playing such a critical part in the day to day running of businesses they are no longer willing to let mistakes go and bear the cost themselves." ®

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