HG Alert: Basic Practical Issues in Software Development Agreements - Mar 2009

Differences in the expectations of suppliers and customers regarding the development of bespoke software, frequently lead to disputes regarding development timeframes, scope, cost, and intellectual property ownership. It is not uncommon for software development projects to be delivered late, over budget, and without all of the expected functionality.

In order to ensure that both suppliers and customers have their expectations met, various practical matters should be considered from the outset of a software development project, with the view of being dealt with expressly in the agreement. Considering and addressing those matters will reduce the chances of encountering costly delays and legal problems down the track.

The following is a brief summary of some limitations in software development agreements which may arise from overlooking the basics:

  • Failing to clearly define and describe the software which is being developed and failing to link the software to the functional requirements. Having a detailed set of the main functional requirements prior to any development is crucial. Ultimately all the functional specifications should be incorporated into the agreement so that the scope and functionality of the software required to be delivered by the supplier is clearly set out.
  • Failing to clearly express a timeframe for the various stages of the software development, including failing to stipulate the consequences of those milestones not being met. Which failures should allow the customer to terminate and which should merely entitle the customer to a pre-agreed sum of liquidated damages?
  • Failing to adequately deal with intellectual property issues, including:
    -  not addressing who is to own the intellectual property rights in the software and any updates and new releases of the software; and
    -  failing to obtain a warranty and indemnity from the supplier that the software does not breach the intellectual property rights of a third party.
  • Failing to clearly specify what acceptance tests are to be performed in respect of the software, when those tests are to occur and the consequences of a failure of the software to satisfy those tests.
  • Failing to clearly deal with what (if any) support and training services are to be provided.

If you have any queries in relation to your software development agreements, please contact HopgoodGanim’s Technology, Intellectual Property and Outsourcing specialists.