29/09/2011

So you’ve got this great new business idea and want to use the web as an interactive tool to promote it. And after a bit of searching you’ve found someone to develop the software for you. But how do you get the product you want and establish such key aspects as confidentiality, ownership rights, payment and warranties?

A written software development agreement can give you more comfort than merely relying on the good old phrase of "don’t worry, we’ll fix it". It can help serve as a blueprint for the development effort and govern the arrangements between you and the developer. It can also prevent you losing time in getting the business started and the cost of paying for something you don’t want or that doesn’t perform as required. Otherwise, it could be one side’s word against the other as to what the parties originally intended if the matter ends up in court.

It is important to realise that there is no "property" right in pure ideas. It is vital to have a written confidentiality agreement with the software developer very early on in the process before you explain in too much detail what you want them to develop. This can help prevent the developer writing the software and claiming it for themselves.

The written agreement typically covers several distinct areas. Specifying what the software must do is often a lengthy process and the agreement needs to cover the ‘to-and-fro’ involved in getting this done. It should also include procedures for approval of the specifications, the delivery schedule and acceptance testing. Specifying a clear mechanism for requesting, approving and implementing any changes in the scope or function of the software, as well as who pays for them, also needs to be recorded in the agreement.

Confirmation of who owns the software is an essential and complex component of the contract. Specifying whether you own or just licence the software from the developer, and what rights each party has to use, copy, distribute or modify the software are important issues to be worked out between you and the developer.

A very clear payment schedule covering how and when payments are made can protect both you and the developer.  Agreeing to payment after completion of a certain milestone, defining a fixed price contract or an hourly rate for further amendments to the software are all aspects to consider in the payment terms.

To protect you and your business integrity, the developer should be expected to warrant that the software will substantially perform according to the specifications.  Conversely, the developer will typically want to limit their warranty to correcting the defects brought to their attention during any specified warranty period. Recording these terms and the limitations on each party’s liability for any losses arising from the software is also worthwhile.

Finally, providing ways to solve problems if they develop through specifying dispute resolution provisions can make for a sound written agreement.

If you have any questions in regard to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.