Year 2000 -- Opportunities and Challenges

P> The Challenge

Year 2000 problem analysis has shown an average 3 percent of all lines of code contain date references. Forty percent of these lines of code require expansion to ensure proper post-year 2000 processing. These lines of code will affect 80 percent of the systems in an agency's application portfolio. Additionally, 60 percent of an agency's files will be impacted. Agencies will pay on average $7.50 per line of code and $1,000 per file.

Besides the Social Security Administration, which started a 300 man effort in 1989 to correct the year 2000 problem in 30 million lines of code, most federal agencies are in denial. Surveys found:

- Two-thirds of infotech executives believe the year 2000 problem is not a high priority,

- Three-fourths of program officials believe the problem is not a high priority,

- One-half of IT executives will wait until 1998 to start corrective actions,

- Besides SSA, only the Agriculture Department has a procurement specifically for the year 2000 problem.

The Office of Management and Budget has reacted to this by getting SSA to chair the Year 2000 Inter-agency Committee to help agencies cope with the software problem. Most agencies are now represented, so expect more action in the near term.

The Opportunity

The House Government Reform and Oversight Committee recently heard testimony on the year 2000 issue. Unfortunately, even as the extent of the problem is made known to politicians, requests for additional funding will fall on deaf ears.

With estimates upward of $30 billion to fix the year 2000 problem in all of government, agencies would need to spend their entire fiscal '96 through fiscal '99 software maintenance ($7.4B), software development ($7.5B) and professional services ($16.7B) budgets.

Most federal agencies have not set aside money in their fiscal '96 or fiscal '97 budgets, and infotech research and development and program office funding will be the first areas raided to make up the shortfall. The political process will turn up the heat on agencies, albeit with no funding relief in sight.

What Vendors Need to Know

- Vendors need to determine if the agency has the right to modify the software and whether the agency has the right to hire someone other than the original software developer to perform the modifications. Most licenses prohibit third-party modifications of software. Even though an agency may own the software, the agency does not own the copyright unless a valid copyright assignment has been made. The Copyright Act grants owners of software rights of essential step, fair use, first sale doctrine and private use defenses for obtaining the right to modify software.

- Legal issues will stem from contractual liability of express warranties and implied warranties. An express warranty is a statement presented as fact, a product description or a promise made concerning the software product. Vendors need to look at their transaction documents, product manuals or sales/marketing materials for statements (i.e. "This product will take you into the next century and beyond.") that can be treated as an express warranty that the product at issue is year 2000 compliant. Implied warranties result from stated product expectations or performance expectations.

- Tort liability occurs from fraud and misrepresentation, fraud in the inducement, negligent misrepresentation, professional malpractice, and negligent design and strict liability. Seek legal counsel for guidance.

Vendors Can Protect Themselves With:

- Integration and merger clauses, stating clearly that the terms of the contract are controlling and that representations not contained in the contract are inoperative.

- Liquidated damages provisions that include a reasonable estimate of damages should a breach of contract occur; recovery could also be limited to the repair or replacement of software.

Agencies Should Expect Vendors To Protect Themselves With:

- Performance warranties stating that the software will meet some objectively determined performance criteria.

- Some provision for warranting future performance (i.e. test period to determine year 2000 compliance).

Otto Doll is a program manager with the market research firm Input in Vienna, Va.

Strategic Planning Assumptions for the Year 2000*

--Given the scope of affected systems and platforms, it will cost between $300 billion and $600 billion globally through 1999 to address the year 2000 changes.

--By the end of 1997, less than 20 percent of information systems organizations will have 100 percent year 2000 compliance in their portfolios.

--By the end of 1999, less than 50 percent of IS organizations will have 100 percent year 2000 compliance in their portfolios.

*There is a 70 percent probability that these assumptions are accurate.

Source: Gartner Group

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