Software Development Contract

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Software Development Contract

A Brief Introduction About the Software Development Contract

Software development is the process of conceptualizing, designing, programming, documenting, examining, repairing, and maintaining software elements. It includes writing the software codes in computer language. The customer states the concept and requirements based on which the developer then proceeds to create the software. It can broadly be seen as the process from the concept of the software to a completely usable software that performs all the sought-after functions.

A contract entered between a software developer and their client for this role is known as a software development contract. It enables the client to list out their requirements from the software and their various terms and conditions and allows the developer to set his budgets and timelines. It lets both parties have a common understanding of the project terms and helps them collaborate to complete the project as desired. Further, it also provides remedies for conflicts and protection to the parties in the case of any breach of contract terms set out in the document.

Who Takes the Software Development Contract? People Involved

The contract is entered between a software developer and his client or customer. The client hires the developer to create software for them that meet their specified requirements. It is usually a collaborative assignment since the inputs from the client are important in the subsequent stages of the development.

Purpose of a Software Development Contract– Why Do You Need It?

A software development contract, also known as a software development partnership agreement, is mainly executed to set out the requirements from the software and the conditions of the project. The contract is used to set up the processes and the stages of development. It is also used to agree upon the project budgets and timelines of the project and is a useful tool to keep them in check.

A contract is a legally binding document and asserts the rights of the parties concerning the development process. It also helps in protecting both parties from disputes that may arise. It protects the developer from unrealistic expectations of the client and protects the client from any unmet requirements or delays in the development process.

Contents of The Software Development Contract

Software development assignments are often quite comprehensive, and vary from case to case and as such require a custom software development agreement to be in place. The contract must cover the general contractual clauses relating to the name, addresses, and roles of the parties, agreement duration, rights and duties of the parties, and termination of the contract. Also, it must include the following:

  • The needs and requirements of the client that are to be solved by the developed software.
  • The language in which the program needs to be designed. It is also essential in this case that the developer exhibits skills in language as well since there will be multiple users of the software.
  • The process involved in the development of the software and the stages of the project.
  • Tools that are needed to carry out the project.
  • A detailed breakdown of the timeline for each stage and the cost estimates for the same.
  • The ownership rights of the software.
  • The responsibility of hosting the software and its cost.
  • The compensation to the developer.
  • The right of use of the software by the developer for marketing or advertising his services.
  • The warranty period of the software to ensure free repairs in case of any technical glitches during the initial use of the software.
  • The details regarding training and consulting from the developer on the use of the software.
  • Clauses on continued support, maintenance, and update activities that may need to be carried out.

The client must include a clause on acceptance testing, i.e., the tests that will be carried out on the software to ascertain whether it performs the desired functions or not. It is upon the success of such tests that the software will be accepted by the client.

The client may also want to include confidentiality clauses to prevent the developer from sharing sensitive information with outsiders and a clause restricting the developer from creating similar software for their competitors.

The developer, on the other hand, may include clauses on further changes that may be needed and can restrict the number of revisions allowed or the duration up to which the project may go on. He can also include clauses on the increase in compensation for additional work over the initial scope.

How to Draft the Software Development Contract?

Below are a few points to keep in mind when drafting the contract.

  • One of the most important clauses of the contract is the ownership right of the intellectual property created. In most cases, ownership is transferred to the client. However, that may prevent the developer from using his standard archive of work. In cases where the developer retains the ownership, he can license the software to the client for a fee. In these cases, however, the software is often not customized to each client’s requirements. The contract as such must draft the clause accordingly.
  • The software is designed for continued use. The employees at the client’s company may not be constant, and the new staff will require training. The software will also require periodic updates and maintenance. Since the post-development services are recurring in nature, the timeline and costs of the same should be put out in the agreement.
  • The project may incur several delays due to unforeseen situations, or there may be cases where the conditions set out may require a change. In these contracts, it is often difficult to change the developer since the work cannot be carried forward and a new person will have to start from scratch. This makes it necessary to estimate the possible disputes and provide for remedies for the same.

Negotiation Strategy for a Software Development Contract

When negotiating the terms of the contract, the perspectives of both parties must be kept in mind. It is important to discuss and agree upon the important aspects of the assignment. The terms that must be discussed include the following:

  • The requirements from the software and the expectations of the project.
  • The process of development to be undertaken for this project.
  • The criteria to be met for acceptance and the terms of payment, whether it is based on milestones or paid in advance.
  • The project timelines and stages.
  • The ownership rights of the intellectual property and the obligations of the parties regarding the same.

Benefits & Drawbacks of a Software Development Contract

The contract enables both parties to set forth their expectations in writing before the start of the project. It allows both parties to be aware of the scope, project duration, fees, processes, development stages, and due dates. It creates an environment for the production of a better quality of work by keeping the parties in check. It also allows them to collaborate effectively to help with the steady course of work.

Mainly the agreement protects both parties from the breach of the contract.
On the contrary, in cases where the work is prolonged or the developer is incompetent, the contract proves to be quite rigid, and it is tough to replace the contractor as all the progress will be lost. It will lead to the loss of valuable time and money. This can, however, be remedied by inserting the relevant clauses into the contract. The contract can provide for dispute resolutions. As such, it is in the best interest of both parties to have a software development contract in place.

What Happens in Case of Violation of a Software Development Contract

When the project does not go to plan, amounting to contractual obligations not being met, there can be ways to solve it.
Firstly, based on the clauses of the agreement for the remedy of breaches, it may grant the developer a certain time frame or specific actions to resolve the matter. The agreement can also set out policies for the review and revision of work in case of such events.

Secondly, in case a remedy is not possible, the contract may be terminated in the manner stated. Lastly, in case of other issues, the aggrieved party may present the matter to a court of law and sue the other party for the performance of contract and damages.

The software development contract is an important document for both the developer and the client. It is a legally binding contract that protects them in case of any violation of the agreed terms and can be used as evidence in the court of law. The agreement is very detailed and includes all the terms and conditions of the project. Most importantly, it sets out the ownership of the intellectual property that is developed. Though not mandated by law, it is advisable to have such a contract in place.

[Also Read: Software License Agreement]