What is a Software Development Agreement?

Common clauses in Software Development Agreements

The provisions in this sort of agreement will vary according to the size and scope of the software to be developed, but commonly include:

• acceptance testing – details any testing requirement the software must pass to be accepted by the Client;
• confidentiality – imposes obligations on the parties to keep all confidential information strictly confidential, except in listed circumstances;
• development stages – deadlines for the provision of software modules (also known as “deliverables”) by the Developer;
• escrow – requires the Developer to deliver the software to an escrow agent and outlines timeframes and responsibility for payment of such delivery;
• hosting – details which party is responsible for hosting the Software;
• indemnity – requires the Developer to compensate the Client for any loss or damage which results from a breach of the Contract;
• intellectual property ownership – states which party owns copyright in the software source code and any other materials provided to the Client;
• marketing – details whether the Developer is allowed to use the Software development as part of its marketing and advertising campaigns ;
• moral rights – the Client may request moral rights (that is, the right to attribution and the right to freedom from derogatory treatment) in the software are waived in the Client’s favour;
• restraint of trade – the Client may request that the Developer does not create competing software for the Client’s competitors for a specified period of time after expiration or termination of the Agreement; and
• warranty period – how long the Software should work without major errors or bugs.

Common problems with Software Development Agreements

A common issue is not adequately addressing ownership of intellectual property (IP) in the software itself.  Under the Copyright Act 1968 (Cth) ownership of copyright in an original work generally rests with the original “author” of the work – in this instance the Developer.  However, this can create issues for the Client who may wish to expand or modify the software in the future.  Alternatively, assigning all copyright in the software to the Client can cause problems for the Developer, in that it prohibits them from using their common core libraries.  To avoid these sorts of issues, it is best that they be documented in the Developer’s standard form contracts.