How to Make Software Development Legally Efficient?

When a client outsources software development to an IT company, it is important to balance the interests of three parties: the client, the company, and the team of developers. This is the task of the IT company, which can be accomplished by drafting and signing two key documents.

IT lawyers at Stalirov&Co shared their experience and tips on creating such contracts. This article is particularly relevant for companies that engage teams as private entrepreneurs, meaning they must pay close attention to the transfer of intellectual property rights and the effective organization of the team’s work on a project.

What Should Be Included in the Contract with the Developer Team?

The software contract is an important document that defines the transfer of intellectual property rights from individual team members to the IT company. Without this transfer, it is impossible to further sell the finished software to the client. Therefore, it is crucial that the document includes provisions regarding intellectual property objects and rights that are transferred from the team members to the IT company.

Additionally, having a contract with the team allows the company to:

• Clarify the functional responsibilities of the team members.
• Establish rules for setting technical tasks, making changes, and accepting work results.
• Outline the payment terms and liability for breaches of the contract.
• Ensure confidentiality.
• Implement an obligation for developers to notify in advance about potential termination of their work in the company, to avoid missed deadlines, keep the project on track, and swiftly replace a team member if needed.

What to Focus On When Drafting a Software Development Contract with a Client?

When drafting an outsourcing services contract, it is important to address the following issues:

1. Payment for the work.

You need to choose between a fixed price and time & material payment models. The fixed price model sets the scope of work and cost upfront, which may lead to additional agreements if the scope changes. Time & material payment offers more flexibility, allowing changes during the development process.

Specific clauses in the contract should define deadlines for reviewing, approving, and paying invoices.

2. Scope of work.

The definition of the project scope depends on the chosen payment method. In fixed-price contracts, the requirements should be detailed and specific. With time & material, the technical tasks may evolve during development, so it’s necessary to define the overall context of the work.

Make sure the contract includes a clause requiring the client to notify of any changes or cancellations to the technical task (TT), specifying a notice period, for example, 30 days.

3. Task assignment and communication.

Clearly defined roles and responsibilities are key to successful collaboration. It’s essential to outline who is responsible for assigning tasks and accepting the work. The client must provide necessary information and materials on time and cooperate with developers throughout the project.

4. Bug fixes.

It is important to agree on the policy for bug fixes and changes. In fixed-price models, you should discuss the number of free iterations to avoid exceeding the budget. It’s also crucial to clearly define what constitutes a bug and what is considered a change request, as well as categorize them by priority for resolution.

5. Acceptance of work results.

The contract should specify the procedure for accepting work results and the steps to take if the client refuses acceptance. This will help avoid misunderstandings and simplify conflict resolution.

6. Transfer of intellectual property rights.

It is important to clarify that the transfer of intellectual property rights occurs upon full payment of invoices, not at the moment of creating objects like writing code or developing designs.

7. Notice of termination of the contract.

Set a notice period for the client to terminate the contract, for example, no later than 30 days before the termination date. This time is necessary for the company to assess the work done, prepare the results, and hand them over to the client.

An IT company acts as a mediator between the client and the developer team creating the software. The absence of clear regulations for interaction with each party leads to force majeure, missed deadlines, and stressful situations. Contracts help prevent chaos and set the stage for successful collaboration.