Software development agreement case study

Gannons worked to negotiate a working agreement between two companies. This agreement governed the use of unique software developed for a collaborative project between the two companies. 

Our client provides online learning tools. They hired a software development company to design bespoke software to manipulate data from various databases. The intention was that the software would act as a bridge to our client’s existing software providing a new online functionality.

Our client’s key concerns

Our client had never embarked upon such a large project before and was nervous about how to negotiate terms. We provided assistance based on our experience with similar situations.

The developer wanted to use the concepts for other projects which our client feared would impact on the competitive edge. We dealt with that by suggesting a revenue sharing agreement strictly monitored by our client.

Once the project got off the ground, the developer was late in delivery. We stepped in to sort out a method for resolution.

Key issues in the software development agreement

We look to matters that go to the commercial substance behind a project. Our aim is to avoid becoming embroiled in points under a commercial contract that are not likely to matter in the real world. In this case, the following matters were of importance:

• Heads of terms - We find the drafting runs more smoothly if heads of terms are agreed. We took our client through this process and agreed the obligations.
• Obligations - who would do what and by when.
• Decision making powers under the software development agreement - In this case, many project managers would be involved – all making decisions. We knew this could be problematic. Hence, our software development agreement outlined the composition of the project team; the project management hierarchy; and deadlines for regular reports and instructions. There was also provision for additional enhancements of the project outside of the original development specification. In such circumstances, the parties agreed to negotiate in good faith to further the development.
• Rates of pay for the service provided - the developer wanted to be paid a daily rate. We pointed out that this was not as sensible as it would be to pay only for work delivered. The amount software developers charge is always contentious. In this case we agreed that our client would make payments  on a stage by stage basis as agreed under the implementation plan in the agreement. Additionally, at the end of each stage, the developer would need to submit progress reports and an invoice. This would be paid by our client but only following sign off at the approved board level. If testing were required, then the payment date would be extended to cover for that.
• Rights to use the software -  our client was keen to restrict use within its markets. However, our client was less concerned about use in markets which they did not compete in.  The proviso was that our client signed off that the use was not being given to a competitor. We ensured that our client retained control.
• Client ownership of IP - our agreement ensured that the IP involved was securely owned by our client. Any derivative of the product or specification beyond what was originally outlined in the development agreement would also be owned by our client.
• Ability to terminate the software agreement - our client was on a strict timescale. They needed the developer to finalise the software development within 12 months from signing. Therefore, the agreement expressly stated that our client could terminate the agreement and claim losses should teh developer fail to deliver on time.