Although there has been more press recently about the so called “Year 2000 problem” (which is also called the “millennium bug” or the “Y2K” problem), there does not seem to be a clear understanding of what the problem entails.
The Y2K problem results from date sensitive computer programs which fail to process properly data entries involving the year 2000. The vast majority of computer programs designed over the past 20 to 30 years used only six digit date entries instead of eight digit entries. Accordingly, January 1, 1997 was entered as “01/01/97” rather than “01/01/1997”. As computer programs assume the “19” in data entered beyond January 1, 2000, systems will read the “00” of the year “2000” as “1900”. Countless miscalculations will follow. For example, a credit or debit card with an expiration date of 2001 will be read to have expired in 1901. A corporate financial software program projecting corporate finances through the year 2002 will likely calculate it in negative years and will miscalculate receivables aging, shipping dates, interest calculations and payroll information. An insurance company computer program designed to calculate premium due dates and policy expiration dates will calculate premiums to be 100 years past due and policies to have expired years before their actual expiration dates.
Some of these problems have already occurred. Heart defibrillators had to be recalled because built-in microprocessor safety chips would shut the devices down for service failure if the chip read 2000 as 1900; and a cash register manufacturer is being sued by a produce supplier for its losses resulting from the software program’s inability to handle sales charges to credit cards expiring in the year 2000 and beyond.
The Y2K problem resulted from older computer programs’ limited storage capacity. To save space, programmers dropped “unnecessary data.” Dropping the “19” from year entries became a universally accepted space-saving technique. Typically, non-compliant programs are found on mainframes, client servers, older PC’s and embedded chip microprocessors. As a result, on January 1, 2000, everything from elevator service microprocessing chips to date sensitive medical devices to communication (telephone, e-mail and voice mail) systems are at risk of shutting down or incorrectly calculating information.
It is estimated that in mainframe programs alone, a date occurs on average once every 50 lines of code, and it is estimated that it will cost on average between $.75 and $2.00 for each line of computer code correction. The repair costs plus litigation costs and the business interruption losses will be significant, possibly exceeding $2 trillion worldwide. Experts are predicting that we should expect to do electronic filings with the IRS by mail as the IRS is missing some of its own source code which is needed to make the corrections.
Critical systems with Y2K problems need to be repaired or abandoned before January 1, 2000, and strategies must be developed to avoid legal claims and costs. All computer systems should be reviewed for Y2K compliance systems; repair vs. replacement of all non-compliant systems should be assessed; a timetable for repair, replacement and testing established; and careful documentation made of the process. As part of this process, all existing software licenses and contracts (including maintenance agreements) should be reviewed to confirm the presence and extent of applicable warranties and representations, responsibility for repair, and ability to test; to remove from the site for testing; and to correct the software (given copyright restrictions). Similarly, review of new software agreements is critical. Financial reporting obligations imposed by GAAP or FASB need to be addressed, as well as disclosure obligations for a company subject to securities regulation. Supplier and provider compliance should be confirmed.
Potential legal entanglement can arise from a breach of express or implied contract (including failure to make delivery deadlines because of system failures), copyright infringement, negligence, product liability, fraudulent inducement and insurance coverage issues.
Please call with any question on this nettlesome issue.
The Y2K problem results from date sensitive computer programs which fail to process properly data entries involving the year 2000. The vast majority of computer programs designed over the past 20 to 30 years used only six digit date entries instead of eight digit entries. Accordingly, January 1, 1997 was entered as “01/01/97” rather than “01/01/1997”. As computer programs assume the “19” in data entered beyond January 1, 2000, systems will read the “00” of the year “2000” as “1900”. Countless miscalculations will follow. For example, a credit or debit card with an expiration date of 2001 will be read to have expired in 1901. A corporate financial software program projecting corporate finances through the year 2002 will likely calculate it in negative years and will miscalculate receivables aging, shipping dates, interest calculations and payroll information. An insurance company computer program designed to calculate premium due dates and policy expiration dates will calculate premiums to be 100 years past due and policies to have expired years before their actual expiration dates.
Some of these problems have already occurred. Heart defibrillators had to be recalled because built-in microprocessor safety chips would shut the devices down for service failure if the chip read 2000 as 1900; and a cash register manufacturer is being sued by a produce supplier for its losses resulting from the software program’s inability to handle sales charges to credit cards expiring in the year 2000 and beyond.
The Y2K problem resulted from older computer programs’ limited storage capacity. To save space, programmers dropped “unnecessary data.” Dropping the “19” from year entries became a universally accepted space-saving technique. Typically, non-compliant programs are found on mainframes, client servers, older PC’s and embedded chip microprocessors. As a result, on January 1, 2000, everything from elevator service microprocessing chips to date sensitive medical devices to communication (telephone, e-mail and voice mail) systems are at risk of shutting down or incorrectly calculating information.
It is estimated that in mainframe programs alone, a date occurs on average once every 50 lines of code, and it is estimated that it will cost on average between $.75 and $2.00 for each line of computer code correction. The repair costs plus litigation costs and the business interruption losses will be significant, possibly exceeding $2 trillion worldwide. Experts are predicting that we should expect to do electronic filings with the IRS by mail as the IRS is missing some of its own source code which is needed to make the corrections.
Critical systems with Y2K problems need to be repaired or abandoned before January 1, 2000, and strategies must be developed to avoid legal claims and costs. All computer systems should be reviewed for Y2K compliance systems; repair vs. replacement of all non-compliant systems should be assessed; a timetable for repair, replacement and testing established; and careful documentation made of the process. As part of this process, all existing software licenses and contracts (including maintenance agreements) should be reviewed to confirm the presence and extent of applicable warranties and representations, responsibility for repair, and ability to test; to remove from the site for testing; and to correct the software (given copyright restrictions). Similarly, review of new software agreements is critical. Financial reporting obligations imposed by GAAP or FASB need to be addressed, as well as disclosure obligations for a company subject to securities regulation. Supplier and provider compliance should be confirmed.
Potential legal entanglement can arise from a breach of express or implied contract (including failure to make delivery deadlines because of system failures), copyright infringement, negligence, product liability, fraudulent inducement and insurance coverage issues.
Please call with any question on this nettlesome issue.
– Cynthia Dixon