Key Takeaways

  • A master service agreement (MSA) for software development defines the overarching relationship between the client and developer, ensuring alignment on project scope, intellectual property, and legal protections.
  • MSAs typically cover project scope, timelines, payment terms, confidentiality, and dispute resolution, among other provisions.
  • A Statement of Work (SOW) is used alongside the MSA to define task-specific details and timelines.
  • Clear clauses on IP ownership, subcontracting, and change management are critical to prevent legal and operational disputes.
  • Including provisions for dispute resolution, such as arbitration and jurisdiction, enhances clarity and risk mitigation.

The master service agreement for software development, also known as the software development agreement, describes the terms on which the developer sells and transfers customized software to the client for their own use in software, processes, or services. Scope of work is added to the agreement to describe what kind of software is going to be developed.

The developer is in the computer application development business and has specialized expertise in creating and testing software used in web and mobile applications. The client wants the developer to create unique software specifically for the client, and the developer accepts the terms and conditions specified in the contract.

Scope of Contract

  • Scope of Engagement: The client retains the services of the developer to create, develop, and implement the software according to the specifications of the client and in the time allotted. The developer can use employees and contractors to design and implement software. The client will work with the developer with requests and information needed to finish the work.
  • Developer Duties and Responsibilities: Both parties will define the specifications and the developer will do the work according to specifications and make an effort to deliver the software at the specified deadline. There should also be a project manager assigned to be responsible for everyday activities.
  • Changes to Scope: If the client wants to change the work, the client has to give the developer a detailed proposal that specifies the changes. The developer will respond with changes in fees and within a certain amount of days. The client will look over developer change and agree, reject, or make other modifications. If changes are agreed to, an addendum can be added to the contract.

Key Components of a Master Service Agreement for Software Development

A robust master service agreement for software development should serve as a legal backbone for the entire partnership. While the Statement of Work (SOW) outlines the deliverables of a specific project, the MSA governs the overarching terms applicable across multiple projects.

Key components include:

  • Project Governance: Roles and responsibilities of each party, points of contact, escalation paths, and reporting structures.
  • Milestones and Deliverables: Timeline expectations for each phase of the project, including prototyping, beta testing, and final delivery.
  • Review Cycles: Specifications on how code or progress will be reviewed and how feedback will be implemented.
  • Change Management: Structured approach for requesting, evaluating, and implementing scope changes via a change order process.

This clarity helps manage expectations and reduces the risk of disputes as development progresses.

Client Responsibilities

The client agrees to follow the terms in the contract and to give the developer support to complete the work. The client is responsible for the fees of any changes in the software, systems, and hardware.

The client will allow for there to be enough people for testing software and prepare the data from the test.

Intellectual Property Rights

A vital clause in any master service agreement software development contract addresses who owns the intellectual property (IP). Most MSAs include one of the following structures:

  • Work Made for Hire: All software, code, and documentation are owned by the client once payment is made.
  • License-Based Model: The developer retains ownership but grants the client a license to use the software.
  • Joint Ownership: Used when both parties contribute IP, though this model can complicate future rights or licensing.

Define whether pre-existing developer tools or libraries are reused, and clarify if those components are governed by open-source or proprietary licenses.

Software Acceptance

Both parties should work together to make an acceptance test to verify the software meets the requirements of the specification.

  • Acceptance Time: The client will have a certain amount of days after delivery of software to inspect, test, and look over the software to see if it meets standards.
  • Approval: If the client approves the acceptance test, the client will give the developer a written notice. The acceptance test is also thought to be approved if the client puts the software into operation.
  • Rejection: If the client doesn't approve the acceptance test, the reason will be explained in writing. If the developer doesn't accept the rejection, this will also be explained in writing. If not, the developer has several days to repair errors.

Subcontractors and Third-Party Vendors

Software development firms often use third-party services or subcontractors for certain technical components. The MSA should specify:

  • Whether subcontracting is allowed and under what conditions.
  • The developer’s liability for subcontractor work.
  • Requirements for ensuring third-party compliance with confidentiality and data protection obligations.

Transparency in vendor use builds trust and helps the client assess risk.

Payments

The client will pay the developer a fixed fee for the work according to a payment described in a section of the contract. The developer will obtain client approval for travel, and the client will pay for commercial software libraries.

Developer's invoices for expenses and fees are due and payable upon receipt by the client. Invoices not paid will have an interest charged per day or maximum allowed by law. The developer can suspend work until payments are made.

Statements of Work (SOWs)

An MSA is often accompanied by one or more SOWs that lay out the specifics of each project. Each SOW should include:

  • Project objectives and deliverables
  • Development methodologies (e.g., Agile, Waterfall)
  • Resource allocation and hours
  • Cost structure (fixed price, time and materials)
  • Acceptance criteria and testing plans

SOWs allow flexibility within a stable legal framework and ensure individual project terms are clearly documented.

Terms and Terminations

The agreement starts on the effective date and will continue until complete payment for the work is received by the developer.

Each party can end the agreement when there's a breach by the other or if one or more terms are not followed, even after a notice.

Dispute Resolution and Jurisdiction

Even with detailed agreements, disagreements may arise. MSAs typically include:

  • Dispute Resolution Methods: Whether issues will be resolved through mediation, arbitration, or litigation.
  • Jurisdiction: The governing law and legal venue for resolving disputes.
  • Force Majeure Clauses: Protection in case of unforeseen events like natural disasters, which may affect project delivery.

Establishing these protocols upfront minimizes uncertainty and costly legal battles later.

Confidentiality

Information that relates to the client is known as confidential or proprietary and will be held in confidence by the developer. This is also true for the client, who has to keep developer information confidential.

These confidentiality obligations will continue for several years as agreed upon in the contract.

Data Security and Compliance

Given that custom software development may involve handling sensitive user data, the MSA should address:

  • Compliance with relevant data protection laws (e.g., GDPR, HIPAA).
  • Measures to protect personally identifiable information (PII).
  • Responsibilities related to data breaches and security incidents.

Specify whether encryption, secure data storage, or periodic security audits are required.

Limitation of Liability

Both parties are not liable to the other for indirect, consequential, or special incidental damages arising as a result of the work. To the extent allowed by the law, the client will hold the developer responsible for claims incurred by the developer arising from the client's breach of contract, along with attorney fees and expenses.

Indemnification Clauses

Indemnification provisions ensure that one party is held harmless for damages caused by the other’s negligence or misconduct. In software development MSAs, common indemnity triggers include:

  • Breach of intellectual property rights (e.g., if developer-delivered software infringes on a third-party patent).
  • Data breaches due to security lapses.
  • Breach of confidentiality.

Carefully negotiated indemnity clauses protect both parties from undue legal exposure.

Frequently Asked Questions

  1. What is the main purpose of a master service agreement in software development?
    To establish a long-term legal framework between client and developer that governs all present and future software projects under a consistent set of terms.
  2. How is a Statement of Work different from an MSA?
    An MSA outlines the general legal and business terms, while the SOW provides project-specific details such as scope, timelines, and pricing.
  3. Who owns the software developed under an MSA?
    Ownership is defined in the IP clause. It can rest with the client, the developer, or both, depending on the agreement structure.
  4. Is subcontracting allowed in software development MSAs?
    It depends on the contract. If permitted, the agreement should require subcontractors to adhere to confidentiality, security, and performance standards.
  5. What happens if the software project is delayed?
    The agreement should include provisions for delays, such as revised timelines, penalties, or renegotiation options based on the cause of the delay.

If you need help with understanding Master Service Agreement Software Development, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.