The Legal Nature of IT Service Agreements
An IT service agreement — software development, system integration, technical support or infrastructure management — is in legal terms an obligation governed by Article 316 of the Civil Code of Georgia: by force of obligation the creditor (here, the customer) is entitled to demand that the debtor (the service provider) perform a certain action, and performance may also consist in refraining from an action, for example a contractual undertaking not to build a similar system for a competitor. The same article sets a general standard of conduct: by virtue of its content and character, an obligation may require each party to exercise special consideration towards the other party's rights and property. For IT contracts this means the provider must handle both the data entrusted to it and the customer's business processes with care — a requirement that flows directly from the law.
Freedom of Contract and Its Lawful Limits
Article 319 of the Civil Code provides that subjects of private law may, within the limits of the law, freely conclude contracts and determine their content. They may also conclude contracts that are not provided for by law but do not contradict it — which is precisely why modern IT service formats that the Code does not name expressly are fully lawful. Where the validity of a contract depends on state permission for the protection of essential interests of society or a person, this must be regulated by a separate law.
Freedom is bounded in three directions that matter in the technology market. First, if a party holds a dominant position in the market, it bears an obligation to conclude contracts in that sphere of activity and may not groundlessly offer a counterparty unequal terms — a large technology provider refusing service or imposing unbalanced conditions violates the law. Second, persons who acquire or use property and services for non-entrepreneurial purposes or to satisfy subsistence needs may not be unjustifiably refused conclusion of a contract where the other party acts within its entrepreneurial activity. Third, contractual freedom operates only within the limits of the law: a condition contradicting the law is void.
Contract-for-Work Rules in IT Services
The classic IT format — delivery oriented to a defined result — rests on the contract for work and labour of Article 629: the contractor undertakes to perform the work provided for by the contract, while the customer must pay the contractor the agreed remuneration. This model describes website development, mobile application creation or system installation: the provider delivers a specific result to an agreed standard. The article also determines the fate of materials and outcome: if the work involves manufacturing an item and the contractor manufactures it from materials acquired by the contractor, the contractor transfers to the customer ownership of the manufactured item — the finished code or assembled system passes into the customer's property upon delivery. Where a generic item is manufactured, the rules on sale and purchase apply. A further practical rule: drawing up an estimate connected with the work is not reimbursed unless otherwise agreed by the parties — analysis, documentation or planning is compensated only by agreement.
Remuneration: What Happens If No Price Was Agreed
Article 630 covers the frequent case where the parties failed to fix the amount of remuneration. Remuneration is deemed agreed even implicitly if, according to the circumstances, the work is expected only for remuneration — an IT order left without a price is implicitly a paid one. Where the amount is not agreed, a tariff rate applies if tariffs exist, and otherwise the customary remuneration. A "we will agree the price later" formula therefore does not invalidate the contract: the tariff or the market's customary fee fills the gap.
A recurring problem in IT projects is delay on the customer's side — postponed testing, ungranted access, non-acceptance of the result. Under Article 633 the contractor may claim compensation for damage if the customer does not accept the completed work; the customer is obliged to compensate the damage also where it fails to perform an action necessary for the performance of the work — for instance, does not hand over necessary information to the provider. The amount of compensation is determined by law through two criteria: according to the duration of the delay and the amount of the remuneration, and according to what the contractor would have earned by otherwise using its workforce had the customer not exceeded the term. A claim for income lost due to a delayed project thus rests on a statutory basis.
The Contractor's Right of Pledge — Security for Payment
To protect against unpaid IT orders, the Code gives the contractor a powerful instrument: under Article 634 the contractor may exercise a right of pledge over the movable item manufactured or repaired by it, provided the item is in its possession for the purpose of manufacture or repair. In practice this concerns a server, workplace equipment or other physical device handed over for repair — until the remuneration is paid, the provider may refuse to return the item by invoking the right of pledge as security for its claims.
Frequently Asked Questions
May parties conclude an IT contract that the law does not name?
Yes. Under Article 319 subjects of private law may freely conclude contracts and determine their content within the limits of the law, including contracts not provided for by law, provided they do not contradict it. Only a condition contradicting the law is impermissible; the absence of a statutory named form does not invalidate the agreement.
Who owns the delivered result, and is a preliminary estimate reimbursed?
Under Article 629, where the work involves manufacturing an item from the contractor's own materials, the contractor transfers ownership of the manufactured item to the customer. Drawing up an estimate connected with the work is not reimbursed unless otherwise agreed — separate compensation for analytical or planning work arises only from agreement.
What can the provider do if the customer delays acceptance or testing?
Article 633 entitles the contractor to claim damages where the customer does not accept the completed work or fails to perform an action necessary for performance. The amount is determined by the duration of the delay, the amount of the remuneration and the contractor's realistic alternative earnings.
Can the provider keep the equipment until it is paid?
Yes, within the limits of Article 634: the contractor may exercise a right of pledge over the movable item it manufactured or repaired while that item is in its possession for manufacture or repair, as security for its claims.
How We Help on Legal.ge
Legal.ge connects you with lawyers versed in Articles 316, 319, 629, 630, 633 and 634 of the Civil Code who will help you structure IT service agreements, manage performance and acceptance, claim compensation for delay and invoke the contractor's right of pledge. Choose your specialist today and protect the legal interests of your project on Legal.ge.