What to Include in a Software Development Contract

CEO & Co-founder

You know what to consider while choosing a software house for your next project, so it’s time to arm yourself with knowledge for signing a contract that includes all relevant information. Read on to learn the most important terms of software development. 

The contract that protects the interests of all the parties involved

Overall, the contract should be based on services and the project scope that is going to be delivered. However, note that when it comes to large projects, it’s nearly impossible to determine what exactly will be done at a given time. So, it’s more an outline of what will be implemented than a list of specific requirements. 

Moreover, the contract needs to determine the project management methodology that will be used. So, if the software development is going to be based on an Agile methodology, the contract should include information that this method is agreed by both parties. Plus, it should mention the details of collaboration, such as the frequency of meetings and responsibility for their organization, tracking the timeline and progress.  

The software development contract should define the way your IT project will be developed and delivered. A decent agreement includes the responsibilities and liabilities of both parties, costs, etc. 

Let’s get through the list of the most important things that can protect both you and a vendor from failure. 

What a client wants to include in a software development contract

There are some specific points that the contract should contain to make you, as a client, feel safe and confident that you’ll get the service you expect. Here they are: 

  1. The test period. These could be, for instance, the first two or four weeks of the collaboration when you can terminate the contract with immediate effect. It can be helpful in the event of bad practices or fraud on part of the software house.  

It’s important to have this point in a contract, as you can usually spot some red flags (e.g. poor communication with the project team) during the first weeks of collaboration. So this clause will save you months of collaboration with a software house you don’t want to work with. 

  1. Vendor’s general liability insurance with broad protection for the software development. It will help to cover any potential damages or legal fees.  
  2. Determining the key project roles and rates of individual team members. This point should clearly state who and for how much will work on your project.  
  3. Reporting on the progress. It should be specified what and how often the vendor will be delivering to the client. 

It can be, for instance, a detailed work report to be sent every week. You should be updated on how much time is allocated to certain tasks and who was responsible for which tasks. 

  1. Specified termination notice period. This point should also address the consequences of termination.   
  2. Intellectual property rights. The contract should clearly state that the software that is developed to complete your project, as well as the source code, becomes your property right after the payment is completed. 

Main contract points from a vendor’s perspective

There are other key issues that a software house wants to address in the contract. Here’s what you can expect: 

  1. The client’s obligation to provide the main credentials needed to start the software development, and maintain them throughout the contract period.  
  2. A key representative of the client — a member of the client’s team who is responsible for communicating the client’s requirements and vision to the dev team and for ongoing revision during the project. 
  3. Invoice payment terms. For instance, the due date can be 14 days from the date of the invoice. This clause is important for both parties, as software development usually involves large amounts. So, if you pay regularly, you can prevent debt. 
  4. The amount of money to be paid upfront. It usually equals an average amount on a single invoice. Keep in mind that a deposit lets a development company safely put time aside for your project.  
  5. Post-employment restraints. Many software houses include a clause that prevents the client from poaching its employees. It usually comes with a specific duration of the ban (e.g. 3 years) and a penalty to be paid. 
  6.  Information about any settlements, including hours spent on programming, creating new development environments, project meetings, as well as bug fixing, which is a natural part of the software development cycle.  
  7. Disclaimer of warranty because of the complexity of software development. Note that even if a software house makes every effort to ensure the quality of its software, a potential bug can be caused based on third-party solutions, such as an operating system or browser. So it’s natural that a vendor includes this point in a contract. 
  8. The limitation of liability clause. This one can be included to, for instance, set the amount of the vendor’s insurance coverage. 

There you have it! I hope the list will help you outsource your next software project more efficiently. And last but not least, before you sign a contract, always read all the points carefully to avoid confusion and reduce the likelihood of disputes arising.  

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