The year 200 problem is relevant to you

Peter Maguire and Maxine Cupitt

of Cameron McKenna

A great deal has been written about the Year 2000 problem; so much, in fact, that there is quite understandable "reader fatigue" in relation to the topic. This, in itself, may present a danger:

Four good reasons why you should read this article

You could be sued as a result of the problem
You may not be insured and you may have to bear the loss yourself
You can take steps now to limit your exposure
In order to do so, you must understand the problem

What is the Year 2000 Problem?

The so-called Year 2000 problem arises from the fact that many computer programmers have historically, originally as a result of shortage of computer memory space, used a two digit format to identify a given date; for example 1st January 2000 as 01.01.00.

It has been recognised that systems programmed in this way may, when dealing with dates shown as "00" onwards, misinterpret them as meaning the century 1900; alternatively, they may be interpreted as the year when the relevant program was written or, possibly, as an error message. Other problem dates include 29th February 2000, since Year 2000 is a leap year and 1900 was not, and September 1999, since some programmers have used "9999" as shorthand to prompt the end of a program.

Two digit programming has been adopted, not only in systems immediately recognisable as computer systems (for example office networks) but also in the programmed element of embedded processors which are used, among other things, in heavy plant and building management systems.

How may the Year 2000 problem strike?

It is, unfortunately, very far from being the case that the Year 2000 problem is an IT problem only.

The potential ramifications of an office systems crash (or, potentially, the disruption of such systems without any visible sign of the disruption) may lead, in the absence of paper back-up, to loss of information for the period it takes to remedy the problem or, potentially, permanently, or to the circulation of incorrect information which may take some time to detect. Information held on surveyors' own office systems may include:

Break dates
Rent review dates
Dates of expiry of leases
Service charge information

The function of computer systems is, of course, not confined to the provision of information. Computer systems, including embedded processors, may control numerous facilities within a building. The Year 2000 problem thus has the potential to disrupt or affect systems including the following:

Fire fighting systems
Security and access systems
Temperature and ventilation controls
Power supply
Communication systems (including faxes and telephones)
Lifts and escalators

Even where the systems of a particular business are Year 2000 compliant, the non-compliance of a supplier or trading partner of that business could lead to disruption as a result of failure of that party to provide goods or services. There could, for example, be disruption to:

Power supply
Telephone and other communications
Supply of goods vital to the business

When may the Year 2000 problem strike?

It is a fallacy to assume that the potential impact of the problem will be limited to the change of date from 31st December 1999 to 1st January 2000.

Affected systems may begin to operate in an inappropriate way as soon as they are called upon to process critical dates and may continue to do so, if undetected, well beyond 2000.

The Year 2000 problem has already led to the inappropriate command that food in a chain store should be discarded as past its sell by date and there has been litigation in the USA, including a claim arising from the inability of cash registers to process credit cards with dates beyond 1999.

Is the Year 2000 problem real?

Coverage of the problem in the press has reached near saturation point, with different opinions being expressed as to the scale and potential ramifications of the problem. The message is further confused by the fact that a number of commentators clearly have their own purposes to serve either in dramatising or down-playing the potential effects of the problem. It does appear, however, that genuinely widely differing views are held within the IT industry itself as to the likely ramifications of the Year 2000 problem. This, in itself, is problematical in that it has led to scepticism and, therefore, inactivity, in certain quarters.

What is certain is that if the Year 2000 problem does give rise to significant loss and disruption, many companies and individuals will seek to lay off their losses on their professional advisers.

Insurance

Because the extent of the ramifications of the Year 2000 problem are impossible to predict, it follows that the risks potentially posed to insurers by the Year 2000 problem are unquantifiable. As a result, a number of insurers are applying Year 2000 exclusion clauses to policies and surveyors facing Year 2000 claims may, accordingly, experience serious financial difficulties in the absence of cover for such losses.

Even where Year 2000 exclusions are not applied to policies, surveyors may suffer losses for which the policy will not provide cover; either because the loss does not fall within the scope of the insurance at all (for example, loss of goodwill on disruption of a business) or because the loss falls within the scope of an existing exclusion within the policy (for example Year 2000 losses which give rise to pollution).

What can you do about it?

Your own business:

Your systems

If you have not already satisfied yourself that your own systems are Year 2000 compliant, you should do so immediately taking steps including the following:

appoint a risk manager or risk management team
carry out a review
institute a plan for immediate action
consider instituting a contingency plan to deal with the aftermath of the problem

The advice which you give

It is vital that you recognise instances in which you give Year 2000 related advice. You may be giving such advice explicitly; for example you may be advising whether the Year 2000 problem has the potential to affect the proper operation of a building.

As importantly, you may be giving such advice implicitly. If, for example, you are advising a tenant in relation to acquisition of a lease of part of an office building containing building management systems, depending upon the nature of your instructions you may well be expected to consider important issues such as whether the landlord has given specific assurances that the building will be Year 2000 compliant and whether, if the building is not Year 2000 compliant, the cost of rendering it compliant will be included in the tenant's service charge. There may also be important Health and Safety implications; for instance in relation to emergency shut down systems.

Your risk manager/risk management team should:

raise awareness of the issues within your firm
monitor new instructions and, as importantly, review current instructions
identify the instances in which such advice is being given

In relation to both existing and new instructions you may need, depending on the nature of the instruction, to:

clarify the scope of your obligations (and those of your clients)
seek agreed variation of the terms of existing agreements
ensure that your clients are aware of any assumptions on which your advice is based.
consider whether your practice has the necessary expertise to advise (or whether your clients should be advised to seek specialist advice)
check and understand your insurance position
consider, if appropriate (for instance,where additional obligations are being assumed) seeking to exclude or limit your liability or to seek an indemnity or "hold harmless" from your clients (subject to the provisions of the Unfair Contract Terms 1977).

The Businesses of Suppliers

Your enquiries of them:

Remember that whether or not your business is Year 2000 compliant, it could be disrupted by the non-compliance of your suppliers. You should therefore identify those suppliers important to your business and make enquiries as to their Year 2000 compliance. While the enquiries you should make will vary accordingly to the nature of the supplier, matters raised are likely to include the following:

the existence and status of their Year 2000 project
whether the systems relevant to the efficient running of their business are currently Year 2000 compliant.

Their enquiries of you

You may, in turn, be asked by clients, tenants, suppliers and trading partners to provide confirmation that you have taken all necessary steps to ensure Year 2000 compliance. Depending upon factors such as the number of queries received and the complexity of your compliance programme, you may either wish to respond to these enquiries individually, or way of a regularly reviewed and updated policy statement.

In either case very great care must be taken to ensure that no misleading information is provided which could subsequently give rise to a liability on your part.

In Summary : Recognise and act upon the Year 2000 risk

The Year 2000 problem poses a significant potential risk to your business. This risk can, however, be contained if you address it now by:

recognising and understanding the problem
implementing an immediate practical risk plan
raising awareness within your own organisation and among clients, and agreeing upon an appropriate response
clarifying and limiting the scope of your obligations, where appropriate.

Peter Maguire and Maxine Cupitt are co-authors, with the RICS, of the RICS Guidance "Beating the Bug". This Guidance deals more fully with the issues summarised above and provides draft specimen wording in relation to issues including potential limitation/exclusion of liability and statements as to Year 2000 compliance. Copies of the Guidance can be obtained .