Guide to Custom Software Development Contracts

software development services

Several businesses rely on third-party vendors when it comes to custom software development. If you are a business owner looking for vendors for your projects, you need to research well first to go through the previous projects.

When you are satisfied with the company’s estimate and work, you face the next step- signing the contract for hiring their services. Though this step might seem to be a simple one, it is not.

You should be aware of the contract’s loopholes to get value for money and the desired product delivered to you in time by these services.

Problems you might face with a software development company

There are many cases where your legal advisor might not be familiar as to how IT contracts work. This means, if you are not prudent and careful, you overlook the risks and paragraphs that are not favorable. You will undoubtedly face adverse consequences like-

  1. Copyright issues.
  2. The pace of software development becomes sluggish.
  3. You cannot change the contractor once the contract has been signed
  4. Wastage of a lot of time and money.

If you are responsible for signing any custom software development contract, it is your job to look for loopholes in it. Others can miss these loopholes. The following is a list you can refer to for spotting some of these general traps in contracts for software development-

The first point for you to consider is to understand the type of agreement you are entering into. There are four main types of contracts for a business to use. They are –

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1. Materials and time – This is popular for development outsourcing. Here –

• The business pays for the amount of time that the vendor spends working on the contract. For instance, the payment is made on the number of hours, the rate you pay for each hour, etc.
• You will agree to pay extra in case the hours of the project take more than expected.
• You do choose to control the process for custom software development when agile technology methodologies are deployed.
• The vendor gives you a full demo of the completed tasks after a few weeks.
• Needs lesser time for planning and preparation.
• Vendors are not rushed to complete the project in a specific time frame.
• There is an outstanding quality of development with these projects.

2. Fixed Budget – This is a variant of the fixed bid type of project for custom software development. Here –

• The budget for the entire project is decided from the beginning.
• The scope of the development process is subject to change as the project progresses.
• Ideally, not suitable for large projects that are working with specific tasks.
• Great for businesses with a tight budget.
• The scope of the project is generally determined by the software development company responsible for the project.
• The software’s basic features are included, while costly ones are left out until the final release.

3. Fixed Bid – These types of contracts for custom software development imply the business will determine the scope and the fixed budget that needs to be paid for the project. It is ideally suited for –

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• Small tasks.
• Popular on freelance platforms where the bids are posted with the price.
• Can be used for a test task.
• Developers often use tools that are less developed to stick to the budget.

4. Capped budget and accelerated hours – Here, the development company gets a bonus if the project is delivered ahead of time in addition to a fixed budget. Here –
• There is a significant risk factor involved here as the quality time for the project’s successful development may be compromised.
• A bonus offered can be a motivating factor for developers to focus on better quality.
• The budget can vary for the business due to the bonus factor involved.

Hire Software Developers and know the salient points of a standard contract

From the above, you now know about the different kinds of custom software development services and their pros and cons. The salient points of any standard and fair contract must have the following –

1. Mention specifically the services to be offered – This must be in detail and writing. The same applies to the changes applied, if any. The change must-
• Be described.
• Be clear on how it will affect the time and the cost of the project.

2. The budget’s time and cost – This clause will cover the price needed to complete the project. It states-
• Development phases.
• The hourly rates.
• Milestones, and
• Deadlines.

This clause should also mention the onus for delays on both parties’ sides to the contract.

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If partial payments have been agreed to by both parties, this point must be clearly stated in the contract. Both parties should sign all documents to supplement the above.

3. Acceptance Testing – This needs to specify whether the acceptance testing should be done by your end or the vendor. It should state –
• Who will conduct acceptance testing?
• The duration of the testing.
• How its results are communicated to the other side?

4. Rights to Intellectual Property – Here, the provisions must be clear and written. You-
• Should be the owner of the source code. This gives you the right to change or even modify it as and when needed.
• In the event of contract termination, you own all the codes developed so far.
• Materials created for the custom software development process should be destroyed.

Software development services and the importance of confidentiality

There should be no disclosure about the project details from its start to finish to any party other than the parties involved. It should be strictly maintained even after the project has been completed.

Therefore, when it comes to entering into custom development software projects, the above information will help you make better-informed decisions. Ensure you have an excellent lawyer to verify all the terms and conditions of the contract to prevent hassles in the future.


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