Software Development Agreement: Codes, Clauses, and Collaborations

The software development industry involves a highly competitive landscape. To put it in perspective, there are over 21,500 firms around the world actively building software for a diverse range of industries. On top of that, it is expected that by the end of 2023, there will be over 27.7 million software developers around the world.

Now, this competitiveness has birthed several ethical and unethical practices among software development companies which can be harmful to parties involved in building software. For instance, leaking or stealing someone’s software idea, copying the code, sabotaging the development process, and more.

Thankfully, smart practices like developing a custom software development agreement can safeguard the secrecy of the project.

What is a Software Development Agreement?

A custom software development agreement checklist consists of clauses that define legal liabilities, regulations, rules, and rights of involved parties. These clauses safeguard the intellectual property and confidentiality rights of projects as well.

A software development project, if exposed, can be harmful to the secrecy of the growth plan of a business. However, a software developer contract can bind involved parties to legal liabilities that would enforce them to follow certain confidentiality norms.

To understand the characteristics of a software development services agreement, we will have to dive in deeper!

Characteristics of a software development contract

1. Project Timeline- A timeline of the software development project covers milestones and deadlines for the phases involved. Using the project timeline, parties involved in the project set their expectations and the amount of work for each milestone.

• Specify timelines of a project along with dates of beginning and ending the same
• Specify deadlines for milestones that will be involved in the software development process
• Mention review and approval timeframes that will describe milestones and the expected progress
• Address the schedule that will be dedicated to the testing and fixing phases of the development
• Clauses describing the buffer periods that can be given to the development process
• Discuss consequences that can occur if the project is not timely delivered
• Address the consequences of terminating the contract earlier than the scheduled completion

2. Scope of the Project- In a software developer agreement, the scope of the project covers features, tasks, functionalities, and deliverables. The scope of the project also covers expenses associated with phases of the development and conditions in case scopes are being changed by involved parties. Let’s get more specific-

• List deliverables that cover modules, software components, backend access, documentation, etc
• Describe features that are expected from a software project
• The software development contract agreement should also discuss the procedure for changes in scope
• Technological requirements that would cover programming languages, compatibility requirements, frameworks, and even platforms
• Security measures and standards to apply to the software development process
• Specific UI and UX requirements
• Any specific training sessions or resources to train for the digital product

3. Quality Criteria- A software development agreement can describe expected quality criteria as well. The agreement would include agreed-upon standards along with features and visual standards needed in the software. To get in deeper, here are some quality standards that can be discussed in a software development agreement checklist-

• Define features, functionality, and scope of the software requirements
• Describe software testing methods and tools
• Address the process involved in finding bugs and rectifying them
• Describe performance warranties that cover what conversions and performance will be met during a specific period since the delivery of the project
• How updates and maintenance in the software will be deployed in the future to upgrade or fix the software
• Specify benchmarks and performance metrics, scalability standards, loading time, response times, etc
• Discuss target hardware requirements of devices where the software is supposed to be deployed
• Describe the acceptance criteria that will be used to finalize the delivery of a software product

4. Payment Conditions- Defining how the payment will be made is critical for the completion of a software development contract. The contract will discuss payment milestones, hourly rates, and other additional costs that might occur during the development process. Payment conditions will also cover clauses that might apply in case any changes in costs of software development are being made in between the development process.

• Schedule of the payment for each milestone in the development process
• The amount of the payment that should be cleared at every phase includes what hourly rates or fixed costs should be paid to the working party for the development of software
• Include the currency in which the payment will be made
• What happens if payments are delayed from the decided schedule
• Specify the invoice payment for better clarity
• Clauses that cover any kind of possible payment disputes that might come into existence during the development process
• How to settle payments in case of currency value fluctuations
• What happens if the contract gets terminated
• How and what taxes should be calculated and whether the final cost includes taxes or not
• Cost breakdown that covers all tasks and phases
• Payment gateway agreed upon by both parties
• Any additional charges that might occur while building the software

5. Intellectual Property Rights- Clauses that discuss the intellectual property rights of a software development project include ownership conditions, trademarks, trade secrets, and copyrights. These clauses are specifically designed to protect software characteristics from getting stolen. The section defining intellectual property rights should contain-

• Clauses to discuss the usage of third-party libraries, open-source components, frameworks, and other such properties
• Conditions of transferring intellectual property rights to the client including conditions of the process
• Outlines of the usage of software and its properties for involved parties whether these parties are development companies themselves or the client
• Clauses to protect the information, trade secrets, and product strategy shared with teams of developers
• The intellectual property segment should clearly define who is the owner of the software being built

6. Termination Clause- In case things do not work out between parties that are involved in building a software product, the necessity to terminate the contract might occur. So, it is critical to have terms of termination in place. These terms can come in handy in situations where-

• The client party has not received the quality that was initially promised
• The client is changing expectations or strategies during the development process
• The client has not fulfilled payments of milestones completed
• The vendor exceeds deadlines during the development process
• If any party, vendor or the client, goes bankrupt and cannot continue with the project, it is possible that the contract will be terminated
• If the vendor party is not performing well and missing milestones significantly, it can be a reason why the software development contract gets terminated
• Parties involved in the development of the project agree that it is in their best interests to terminate the contract
• If both parties are having any dispute that can not be resolved through negotiations, mediations, or arbitration

7. Rights of the Vendor- A software development services agreement is supposed to protect clients as well as the vendor. There can be clauses discussed in an agreement covering different phases that protect the rights of a vendor. These rights of the service provider can be:

• Payment and compensation-based clauses that would describe the rights of the service provider in a contract
• Property rights of tools or libraries used by the development service provider while building software
• The right to negotiate changes proposed by the client in the middle of the development process
• Right to have clear project requirements, quality standards, and scope of the client
• Right to access necessary information and resources from the client to build the software
• The right of dispute resolution describes the process that would cover the reasonable process of solving disputes
• If the client fails to meet discussed obligations or breaches the contract, the vendor has the right to terminate the agreement
• If mutually agreed in the contract, the vendor can display the project in their portfolios

8. General Rights of the Client- Being the ultimate receiver of the project and someone who is investing lots of money, the client has several rights mentioned in a software development contract agreement. For instance-

• The client has the right to receive a project that works exactly as it was agreed upon in the contract
• The client should receive required information with the utmost transparency including technologies being used, features of the software, usage guidelines, and more
• The client has the right to expect some quality support as discussed in the agreement
• The client can expect a clear understanding of the timeline by which the project should be completed
• The client can ask for the vendor to share the source code of the software being developed
• The client can expect that the information shared with the vendor will be confidential
• The client can hold the vendor accountable for breaches of confidentiality, contract, or possible delays

9. Governing Law and Jurisdiction: To settle disputes or to hold parties involved in the project accountable, a software development service level agreement should cover the jurisdiction where proceedings are going to take place. 

Best Practices to Prepare a Custom Software Development Agreement Document

An agreement between the vendor and client parties should be carefully drafted to protect the rights of both involved parties. Whoever is preparing the document should consider every phase that goes into the process of building software. 

Now, to list down some of the best practices for preparing a software developer contract, here are some points to consider!

• Expert Help- It is crucial that the person who is working on preparing the agreement has the legal understanding and expertise. For this reason, getting help from a legal expert is always a good idea to prepare the contract.
• Clear and Concise Language- To ensure that software development terms and conditions are conveyed smoothly, using simple and straightforward language is always useful. While drafting the software development agreement, avoiding jargon is the best practice to use.
• Record Maintenance- To ensure whether conditions mentioned in the agreement are being met or not, maintaining records is critically important. These records could include milestones, changes, instructions, and more.
• Signatures and Stamps- While maintaining agreement records, signatures, and stamps are critical for involved parties. These signatures represent the approval of the person signing; whether it is the vendor or the client.

Benefits of Drafting a Software Application Development Agreement

Preparing a contract between the vendor and client parties binds them into legal obligations. These documents set clear expectations and define laws that would enforce these expectations for both parties. Some other benefits that should motivate you to prepare a contract before kickstarting the development project are-

• Risk Mitigation- A software development consulting agreement holds people responsible for any unexpected risks in the process. Whether risks are related to project delays, disputes, or even quality issues.
• Defined Process- A contract defines the development process of software by defining costs, technologies, encryption tools, libraries, and other such resources.
• Documentation- Another critical benefit of a contract is to keep the terms and conditions and other such details of the project documented. These documents can be useful if there are disagreements or legal disputes between the parties.
• Legal Protection- A legal document like a software development consulting agreement provides parties a shield that can protect their obligations and rights.
• Reference Document- In case there are changes in the vendor team or the team monitoring the project from the client’s side, a contract can be used as the reference document to have clear insights into expectations. This helps parties remain on track without losing the progress of the development at all.
• Government Authorization- A legal document also helps prepare software that meets the regulations set by the government of the market where it is supposed to be released. These regulations could be based on security standards, user data protection practices, verification data gathered by the software, and more.

Mistakes to Avoid While Drafting a Software Developer Agreement

While outsourcing a software development project, having a concise and clear sample software development agreement is important. There are several mistakes you can avoid to ensure this.

• Vague Language and Jargon- To convey instructions of an agreement clearly, it is crucial to avoid vague language and jargon that can be misinterpreted. 
• Not Reviewing Documents- Before signing a contract document, you should review it carefully and get it reviewed from a legal perspective as well. This can help you make the best out of a partnership.
• Ignoring Data Privacy Clauses- A project plan, if leaked, can cause major competitive disadvantages. Having clauses that support the data privacy of the user can be beneficial in keeping your project plan safe.
• Not Hiring a Legal Advisor- A legal advisor is important to ensure all clauses mentioned in the agreement are legally enforceable. A legal advisor can be hired permanently or on a freelance basis as well to help organizations build products.
• Copying Development Agreements Blindly- It is crucial to customize the software development agreement template to meet specific project requirements.
• Ignoring Local Laws- Depending on the country or the state of parties getting into a software development services agreement, local laws that enforce a software development process can vary. Ignoring them can result in non-compliance and legal issues.

Sample NDA Software Development Agreement

Wrapping Up

A Software development agreement is drafted to protect clients and vendors. The document, however, does more than that as mentioned above in a few sections. It helps in keeping projects on schedule and ensures that the promised quality is delivered, and payments are made. 

An agreement between software development companies and the client builds trust for both parties on each other. It also works as proof in case of disputes and makes it possible to deliver fair judgments. 

Lastly, the details that we discussed in this blog can help you draft an effective software developer agreement irrespective of the corner of the world you belong to. 

Using these tips, as a client, you can safeguard your rights while partnering with software development companies. And as a development company, practice your rights while delivering a software project.

By Manish

Sr. Content Strategist

Meet Manish Chandra Srivastava, the Strategic Content Architect & Marketing Guru who turns brands into legends. Armed with a Masters in Mass Communication (2015-17), Manish has dazzled giants like Collegedunia, Embibe, and Archies. His work is spotlighted on Hackernoon, Gamasutra, and Elearning Industry.

Beyond the writer’s block, Manish is often found distracted by movies, video games, AI, and other such nerdy stuff. But the point remains, If you need your brand to shine, Manish is who you need.