Software Consulting Agreement: Everything You Need to Know
A software consulting agreement is an important legal contract for both the company hiring the software consultant and the consultant performing the work as an independent contractor. 3 min read
Software Consulting Agreement
A software consulting agreement is an important legal contract for both the company hiring the software consultant and the consultant performing the work as an independent contractor. It’s particularly important in today’s business world when contracted workers perform their duties in different geographical locations from the company’s base of operations, often continents away from the direct supervision of executives and managers. The agreement establishes each party’s legal duties and rights, while establishing clear avenues of communication right from the outset.
For the software consultant or designer, it’s vital to structure the agreement to clearly outline roles and responsibilities, identify who in the company to report to, identify important milestones, protect legal rights, and establish rates and method of payment. In instances when disputes may arise, the software consulting agreement can provide procedures and remedies to resolve disagreements.
For the business hiring the independent contractor, the agreement can minimize risks resulting from misunderstandings, establish legal and tax worker/employer relationships, and identify important delivery dates for finished products. In addition, the agreement can sort out intellectual property ownership rights for any work created during the term of the consultant’s employment.
Key Factors in a Software Consulting Agreement
Although every software consultant agreement will naturally differ based on the range of services provided and the expectations of the hiring company, there are several elements that almost all agreements will address:
- Description of services: This addresses the reason why the consultant is being hired. It’s important for each party to be as clear about their expectations as possible.
- Deadlines: These are especially important for monitoring the progress of work when the ability for the hiring party to directly supervise is reduced because the consultant is working off-site and the consultant depends on important feedback at critical stages in the development of the software in order to move on to the next phase.
- Payment terms: There are a variety of ways through which consultants receive payment for their services, either determined by work progress, retainer, or lump sum payments, and this is where those terms are spelled out. In addition, whereas once upon a time a consultant waited for a check in the mail, today there are online payment services that a company uses that can deposit fees directly into a consultant’s bank accounts on a predetermined basis.
- Termination provision: If a company decides that hiring an independent software consultant is the right step to take, it’s important to provide a provision describing how to properly end the relationship without being exposed to breach of contract lawsuits. The same holds true for an independent consultant who is unsatisfied with performance of the employer.
Important Terms and Details
Much as every software consultant agreement contains fairly standard features, they also generally address the following conditions:
- Intellectual Property Ownership: Unless otherwise stipulated in the agreement, developers own the software and applications they develop. Companies can obtain the ownership rights through specific “work for hire” language inserted into the agreement. Rights can also be shared between the parties or licensed to the company by the developer.
- Confidentiality and Non-Disclosure: Throughout the course of working with an independent contractor, it might be necessary for a company to share trade secrets or other important information that it does not want made public. This provision protects those assets.
- Independent Contractor Status: To avoid exposure for certain tax and employment liabilities, the agreement should clearly spell out that the consultant is not an employee of the company.
- Non-compete Clause: Companies often want to restrict the opportunity for a consultant to provide services to a competitor either during or immediately after the term of the consultant agreement. Consultants usually perform a specialized service that they do not want restricted. This clause is where the compromises are made.
- Subcontracting and Assignments: Sometimes it is necessary for the consultant to farm work out to other companies and individuals. Standard practice is for the client to pay for these additional services, but these costs are usually clearly provided from the outset.
In today’s business world, most companies depend highly upon proprietary software to gain an advantage over their competition. On the other hand, a software consultant earns a living based on specialized knowledge that allows them to provide a unique service. Both the hiring company and the consultant should consult an experienced contract attorney before entering into an agreement as important as a software consultant agreement.
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