Types of Software Contracts: Everything You Need to Know
Different types of software contracts have an impact on the terms and conditions of software for individual and business use.3 min read updated on February 01, 2023
Updated November 17, 2020:
Different types of software contracts have an impact on the terms and conditions of software for individual and business use.
Custom Software Contract Terms
The first thing you should include in your customs software contract is the terms. The terms section should answer these questions:
- Length of the warranty period
- Terms of the contract
- What the vendor will provide
- What you will provide
The terms of a custom software contract must be spelled out clearly and concisely. Create a list of deliverables that you expect from the project to ensure that the terms can be met.
Custom Software Timeline
In addition to the terms, your contract should include a timeline. Any custom software development company should listen to your needs about when you want the project to be finished. Based on your needs, the company can tell you if the timeline you've proposed is reasonable and what to expect. The next step is building a realistic completion timetable, as long as they have everything needed to complete the customization or build process.
As you decide on a proposed timeline, consider these important factors:
- Measuring by end delivery or per milestone along the way
- Adding some extra time for control testing and quality assurance
- Providing the software company with the information needed will help your project stay within the proposed timeline
Stay in contact with the company, and communicate the functionality that is a necessity now, as well as features that would be nice to have. You might want to compile a wish list of features for the future.
After you have completed the timeline and terms of the contract, the next step is determining the materials that are necessary for the project. This portion of your contract will come from the software development company. Examples of materials include servers, equipment, and staff. When you receive the estimate and contract to sign, the documents should include a cost for necessary materials.
Custom Software Documentation
Software contracts don't always include documentation around the design and build of the software. If you want this information included, you might need to request it from the company.
Another important element in your custom software contract is the breakdown of the cost. Some contracts are simplified to the point that all you see is how the costs will be transferred, but the breakdown of the price should be more detailed. The information included in the contract will ultimately drive the behavior of both parties throughout the project.
Time and Materials Contracts
Time and materials contracts are some of the most commonly used types of software contracts. This type of contract details how you will pay the software developer for the hours they spend on your software. This portion of the agreement ensures that the developer will be paid, even if the timeline for the project is longer than expected.
The contract model for time and materials contracts has been around for years, helping to protect the developer if the project has a longer timeline. For startups that are just being developed, uncertainty can exist, so this type of contract will alleviate some concerns. Typically, the initial work scope planned in the original agreement will change quite a bit throughout the course of the project. Changing the scope often includes removing unnecessary features, as well as adding features.
This contract model provides the flexibility needed by both parties to focus on a product that is ready for the market, which is the ultimate goal for the final result.
Pros of Time and Materials Contracts
A time and materials contract comes with several pros:
- Easier and less complicated way to get started with a custom software developer
- More flexibility to make changes to features, while remaining within the same budget
- Stronger trust and communication because both parties know what to expect
- Better chance of achieving your desired result due to constant communication
- Ability to keep track of progress on the software development project
- Reasonable timeline, allowing the developer to focus on quality instead of rushing to complete the job
Cons of Time and Materials Contracts
Some of the drawbacks to time and materials contracts include:
- Less control over the budget
- Shifting deadlines, making it harder to know exactly when the product will be complete
- Constant involvement with the software development company, requiring more effort and time
- Nearly impossible to predict the final cost, especially as things change within the software
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