Software development contracts refer to legally enforceable agreements that govern the provision of software development services. Such a contract binds a software developer and a client to fulfill certain obligations within a specified time frame. There are several different types of software development contracts to suit different needs.

Importance of a Software Development Contract

Whether you are freelancing as a software developer or running a software development agency, you can expect to face many challenges and risks. You are required to constantly update software and technology, handle intellectual property issues, and deal with clients who do not know how the final product will be created or do not meet your requests promptly.

By creating a software development contract, you are allowed to keep the code you create during a project. Depending on which jurisdiction you are in, you may also be able to keep anything you develop that can be regarded as the property of a client. Nonetheless, if you are undertaking a complex project that requires you to spend hours writing code, you can use the code for future projects if you specify that you retain ownership in the contract.

When you are creating a new website, your client may provide you with written content, logos, images, and other elements. You can either do hours of research on the internet to find out whether the content and elements actually belong to the customer, or you can leave the task in his or her hands. A contract will obligate the client to make sure that all the intellectual property given to you belongs to him or her.

In addition, you can specify in the contract the number of changes the client is allowed to request. If you find that you do not like working with your client anymore, a contract can help you end the agreement earlier.

Types of Software Development Contract

Software development contracts can vary significantly in terms of content and format, but most software development service providers use one of the following contracts:

Time and Materials Contract

A time and materials contract requires a client to pay a software developer according to the number of hours worked. The advantages of such a contract include:

  • Simplicity--it's easy to get started.
  • Flexibility-- you can change features and add new ones without increasing your budget.
  • Clarity-- the client knows what they will be paying for, resulting in greater trust and better communication.
  • Close Contact--with this model, you can also supervise and monitor the project more closely.

However, this type of contract also has some disadvantages:

  • Less control over the project's budget.
  • Deadlines may shift when the requirements are updated, making it difficult to know when the product will be completed.
  • It can be hard to estimate the final budget because the initial budget can change if the client changes the requirements.
  • This model requires you to invest more time and effort because you need to be constantly involved in the project.

Fixed Budget Contract

In a fixed budget contract, on the other hand, the software developer and customer both acknowledge that there is a targeted budget for the project and that issues can arise if the budget is exceeded. The advantages of such a contract include:

  • A fixed budget contract allows for tight and consistent communication.
  • Both parties can collaborate more closely and efficiently.
  • The client and the software developer share the risk.
  • This model ensures that both parties will be focused on meeting business objectives, instead of the profit margin and budget.

However, this type of contract also has some disadvantages:

  • A fixed budget contract requires a lot of hard work and trust, which can be difficult to achieve if the client and developer are working together for the first time.
  • The client may not be able to get everything he or she wants at the beginning. He or she may be disappointed in the end, even if their expectations are modified during the course of the project.

Capped Budget with Accelerated Bonus Contract

This type of contract is the same as a fixed budget contract, except that it offers an incentive for quick delivery. As such, it gives a software developer additional motivation to perform efficiently and is ideal for clients operating under a strict deadline.

If you need help drafting a software development contract, 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.