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Consider These 6 Important Things When Concluding Software Development Agreements

The software development agreement is the very first thing customers and developers refer to in case of any disputes in their business. In this article, we will outline its main features and aspects needed to be considered both for a developer and a customer. 

IF YOU ARE THE CUSTOMER

There are some key points the customer always needs to pay attention to when reaching an agreement with a software developer.

  • Transfer of Intellectual Property rights 

The most important part of the software development agreement is the intellectual property rights section. If you are a customer you have to state that you are the rightful and exclusive owner of all deliverables and all other works of authorship made by the contractor in the performance of this agreement.

Sometimes the customer might provide the contractor with materials (tools and engines). In order to protect rights to such materials, the following wording might be included in the contracts:

“In no event will contractor distribute or disclose any source and/or object code included in customer materials to any third party, and contractor will retain such source code in a secure manner, only on premises owned or controlled by contractor, and accessed by employees of contractor only on a strictly need-to-know basis.”

In order to bring it into the legal field, the customer shall grant contractor a royalty-free, exclusive, personal, sub-licensable and irrevocable rights and license to use and modify such materials solely for the purpose of performing services and providing to customer deliverables. contractor. Of course, the contractor shall not use the customer materials for any other program or purpose.

You might also specify the moment from which the intellectual property rights will we be transferred to the customer. As for the customer, the best option, in this case, is the moment of its creation. 

Confidentiality is one of the most trigger aspects in relationships, whether it relates to IT or to any other business. Usually, the customer discloses much more data than the contractor. Thus, it is in the best interests of the customer to outline provisions as strict as possible, to make such information fully confidential.

Sometimes a contractor may engage subcontractors for the performance of services. Therefore, quite often IT contracts have a disclaimer which says that a contractor will not be in breach if it discloses confidential information to employees and sub-contractors, if appropriate non-disclosure agreements with terms at least as restrictive as terms of such IT contracts. We advise you to include such a provision. 

It is also important to mention the liability clauses in case of data confidentiality provisions. The penalty for breach of confidentiality is an agreed sum of money ranging from $5000 to an unlimited amount. The higher amount is, the higher the likelihood that the party will not want to disclose or otherwise infringe established confidentiality terms.

  • Conflict of interests avoidance

The customer may also include non-solicitation provisions, which are types of restrictive covenants to protect legitimate business interests. That means parties will not in any way (nor intend to) persuade other party’s customers, suppliers, contractors, or employees to end cooperation with the other party. Also, parties will not cooperate with customers, suppliers, contractors, or employees of another party under direct contracts within the term of such agreement, and within the period of several months or years after the expiration or termination of the concluded agreement.

Under this section, the customer may also include wording which states parties agree not to take actions that may lead to a conflict of the parties’ interests. They also agree not to engage in activities that may be considered as competition or which may adversely affect the achievement of the purposes specified in the agreement you conclude.

IF YOU ARE THE CONTRACTOR

The aspects you have to consider from the contractor’s perspective are different. So, let’s look at them in more detail.

Payment is a fundamental interest of the supplier. So, the contractor has to take this into account when reaching arrangements in the first place. There are various ways of business processes, and payment procedure is closely related to the way you have chosen to work. It might be based on milestones, sprints or on a monthly basis. The first issue contractor has to check is a period during which an invoice will be paid. The shorter the period is, the better it is for the contractor. Another issue is the moment when you expect to receive remuneration for services provided. For example, your business process might look this:

services provision -> uploading of services to the customer’s resource -> services testing -> payment

Such a scheme works for the customer. As for the contractor, another way might be better:

services provision -> services testing on contractor’s resource -> payment -> uploading of services to the customer’s resource

Even if you are an individual proprietorship and you are not going to engage any person for services performance, it is wise to include provisions that at least allow you to engage employees, agents or authorized subcontractors.

For example, an IT contract may have the following clause:

“Contractor may assign and/or transfer the performance of the Services, or any of its rights and/or obligations hereunder, without the Customer’s prior written consent, to sub-contractors, provided that each such sub-contractor shall have agreed in writing to be bound by terms and conditions at least as stringent and restrictive as the terms and conditions hereof.”

You should not be afraid if the customer wants to outline that you shall be solely responsible in its discretion for the manner and methods by which your personnel perform services. It is established practice for legislation of most countries. Additionally, the customer may want to preclude that in case it is not satisfied with any of your personnel, it may require that any of such personnel immediately cease to provide services, and remedy any defects or deficiencies in the service. Therefore, in such event, you should promptly provide a competent and qualified replacement at no additional cost.

There is no reason to be afraid of the above-mentioned words. Being fully liable for the performance of personnel’s obligations is a risk you have to take, but the benefit received will justify itself fully.

This document is extremely important for you as a contractor, since it is the required document for an individual proprietorship by law. The provision regarding these agreements should be included in the IT contract, not just to satisfy the legislation but also to use it as a reliable proof of proper services provision. This document might contain the name and description of provided services, as well as a resource where such services were uploaded. Additionally, you might include the following wording: 

“The Parties confirm they have no claims for the services specified in the Deed of Acceptance. Payment for services is adequate and sufficient, as well as it constitutes full settlement of any and all claims of the contractor of every description against the customer.”

In case of any disputes between the parties of an IT contract, such wording in a signed deed of acceptance might help the contractor to reduce the total amount of remedies, in case of any damages.

We have singled out the points that are contained in almost every IT contract with the software developer. Nevertheless, it is worth remembering that each type of the software development agreementAgile (or Time & Material), Waterfall (or Fixed Price) and Outstaff (or Dedicated team) agreements–has its own features that need to be considered.

It is crucial to take into consideration many more points that might be included in the software development agreement. That is why applying for legal services from IT lawyers may be vital for your rights and interests’ protection.

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