Software Development Agreements

A software development agreement (Software Development Agreement) is a contract where one party (Developer) agrees to develop a software application for another party (Client). Many businesses we work with undertake software development projects – both for the products or services they sell and for their internal operations.

Key Takeaways of a Software Developer Agreement 
1. Development Services and Specifications

The agreement should clearly define the development services to be completed. Usually, this takes the form of a description of services in the main agreement, with an attached schedule of specifications that describes the final software in detail.

2. Time and Cost Guarantees

Ideally, you want both a quality product and cost certainty. Cost is also influenced by development time. Quality work may take longer, requiring you to pay more.

Unfortunately, software development times and costs can easily blow out. Therefore, you should check the software development agreement to determine whether the developer has given fixed pricing and delivery times, or simply guidelines. Guidelines are only estimates, while fixed pricing gives you better certainty.

3. Development Schedule and Acceptance Testing

Software development usually occurs in staged phases. This gives you a chance to see each phase of the software and approve it before moving to the next. Accordingly, the software development agreement should have a development schedule that contains agreed specifications that the developer must meet in each phase.

4. Warranties and Indemnities

A well-drafted software development agreement will include a warranty from the developer that the product will work as described in the specifications. This warranty should include a promise to remedy any defects in the product at their own expense.

You want to see this explicitly set out in the agreement. There may be references to the Australian Consumer Law. However, as this is a business contract, consumer law protections only apply if the total development fees are $40,000 or less. Therefore, it is best to see the software development agreement clearly set out the warranties.

5. Intellectual Property

The agreement should assign the intellectual property in the software from the developer over to you. This ensures that you have the right to use and license the software.

To facilitate this assignment, the agreement will also include a warranty that the software developer has the rights to the tools used in your project and thus they can legally transfer or license these rights to you. This protects you if other parties claim that your software infringes on their intellectual property. Similarly, the developer will likely also seek a warranty from you that you have the rights to any material you provide.

6. Confidentiality

Your software developer may require access to your business material and networks. Therefore, the software development agreement should contain a confidentiality clause that requires the developer to keep your business materials secret. The agreement should state that this obligation continues even after the developer delivers the software.

7. Termination

Termination means the end of the agreement before the developer completes the final software. The termination clause should set out:

  • who can terminate the agreement;
  • in what circumstances a party can terminate; and
  • how either party will communicate the termination.

For example, the software development agreement may specify that either party must communicate termination in writing with a 10 business day notice period.

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