Posted by Regie Anne Gardoce on 30 August 2019
Whether you’re creating a new App, website or software, most small businesses will need to outsource an independent developer to build it.
And, if you’re paying an independent developer to build your platform, it’s a good idea to put down the details in writing.
You’ll need a contract, commonly called a ‘Development Agreement’.
What is a Development Agreement? What does it include? And why do you even need it?
This article will walk you through the issues and risks you need to consider when working with a developer, and explain how a Development Agreement can minimise those risks.
Why Do I Need A Development Agreement?
A Development Agreement is a contract between your business and the developer who is creating something for you.
Often, there can be a lot of back and forth between yourself and the developer to agree to what the developer will do for you.
And, sometimes miscommunications and misunderstandings may lead to potential disputes and issues down the track.
This is why it’s important to have an agreed contract to fall back on.
Especially for development projects with specific deadlines, a lot of money involved, and a lot of stake for your business – you want to make sure the process is as smooth as possible.
Having a Development Agreement in place puts you both at ease, as it is an opportunity for you and the developer to agree on specific terms and deadlines.
It’s also a great way for you both to clarify your understanding of the project and what’s involved to avoid any confusion or disputes later.
And, if a dispute does come up, a Development Agreement can set out the right process for handling it and help you avoid costly litigation.
What Should I Look For In A Development Agreement?
A Development Agreement is essentially a Contractor Agreement, with specifics included about what the developer will create for you.
But, each project is different, so each Development Agreement is different!
So, next we’ll go into key things that you should look for in a Development Agreement.
However, you should consider these things in the context of the specific needs of your business, the risks in the platform you are developing, and the developer you are working with.
Scope Of Work
A Development Agreement will set out the scope of work (SOW) for the developer.
A SOW is basically just what the developer will do and when they’ll do it.
Generally, this is in the ‘Order Form’ or ‘Schedule’ section of the contract.
A SOW is crucial for a Development Agreement because it sets out the “what” and “when” of the services.
Generally, a SOW includes:
- The activities the developer will perform
- The deliverables the developer will produce
- A timeline of milestones and deadlines to be met
- The fees for the service
- The project start date
- The project delivery / completion date
Whether it’s a simple website or a company-wide system for all your employees or clients, the SOW’s level of detail will depend on the value and risks of the platform being built.
So, you’ll need to negotiate with your developer to make sure that the scope of work is clear from the very beginning.
There are different ways you can structure payment terms in a Development Agreement.
Your developer may want you to pay for the development upfront or with a deposit.
As the customer, to minimise your risks, you may want to pay as much as possible at the latter end of the contract, rather than upfront.
This will ensure you’re not handing over payments without receiving any services.
So, you can meet halfway.
A middle ground is to structure the payments in milestones, so upon blocks of completed services, you pay for that milestone.
This is better for you than paying upfront, while also being more comfortable for the developer.
Making sure payment terms are clear in your contract is always important – especially in Development Agreements!
Protecting Intellectual Property
Probably the most important consideration when working with a developer is balancing the intellectual property rights of yourself and the developer.
On one hand, if a developer is developing an app for your business, you want to make sure that you own the IP rights to the developed platform.
But on the other hand, the developer might also want to retain some rights to use the work they created.
They may want to showcase the work they created for you on their portfolio as part of their marketing drive to attract future clients.
And, sometimes the work they provide is made up of a library of different assets that they may need to use for future work.
So, in practice, it can often be difficult to negotiate the extent to which both parties can use or own the IP afterwards.
It’s important that both you and your developer are on the same page around what the developer can and cannot do with the platform after they’ve created it for you – so make sure you get it down in writing!
It’s also important that warranties from the developer are included in your Development Agreement.
Warranties include a promise from the developer that they have the skills and expertise to build the platform to the standard you expect.
And, that they promise to fix any defects in the final deliverable they provide (rather than you paying for additional services).
Warranties can also promise that the platform won’t infringe others’ intellectual property rights.
There are warranties and consumer guarantees under the Australian Consumer Law (ACL) that will apply in certain circumstances regardless of what a contract says.
Also, in June 2019, changes were made to the ACL around warranties, where specific wording must be used in a contract if express warranties are given for goods or services.
So, you need to make sure you use the right warranty wording in your Development Agreement.
You might want to prevent the developer from doing certain things that could harm your business (and vice versa).
For example, your contract could include restraint clauses, which would prevent either of you from taking the other party’s clients or employees away from one another.
And, you could also prevent the developer from doing any future work for any of your competitors (which could be difficult to negotiate).
But, under Australian law, restraints need to be reasonable in the circumstances to be enforceable.
This will depend on the specific nature of the development project- its size, scale, and importance to your business – and the level of access that the Developer has to your clients, and involvement in your business.
It’s a good idea to talk to a lawyer about how you structure any restraints to ensure they are enforceable.
When a developer does work for your business, you might be giving them access to your computer systems, client lists, price lists, and a variety of other business secrets.
So, a confidentiality clause can be useful to require the parties to keep confidential each other’s confidential information.
A Development Agreement may also include a clause that sets out what will happen if there is a dispute between both parties.
This could include mandatory mediation (at shared expense or one party’s expense) and best efforts to not proceed to litigation.
Unfortunately, there’s always the risk that things may not work out between you and the developer.
Or, things might change for your business and you may not require something to be developed anymore.
So you want to make sure you have the right to abandon the contract if needed (especially in longer-term projects).
A Development Agreement will generally have a termination clause which would allow either party to terminate the contract earlier than the expected delivery date.
For example, you could specify that you need written notice within a specific time period.
Or, you can also specify particular circumstances either party could terminate the contract immediately (such as a serious breach of the contract).
Though this may not be the case for you, it’s always a good idea to be prepared for when things don’t work out (and this is why having a contract is important).
What To Take Away…
Using an independent developer is a great way to outsource technical expertise to create a website, app or software for your business.
It’s important to make sure you have an agreement in writing to point to if any potential disputes, confusion or deadlocks arise later down the track.
A Development Agreement should include a number of important clauses.
From defining a scope of work to payment structures, intellectual property rights and termination; it’s always a good idea to have a contract set out from the very beginning.
A contract could help if a developer creates the same platform for a competitor, stops work right before the launch of your business, or refuses to fix a problem with the platform.
There are a number of considerations you’ll need to make to mitigate your risks and avoid disputes as much as possible – and a lawyer can help you walk through your needs.
Talk to a lawyer
At Sprintlaw, we have a team of expert technology lawyers who know how to make sure your Development Agreements are clear, concise and protects your rights.
We can also review agreements if you’ve been provided with a Development Agreement from a developer.
And, if you’re a developer, we can also draft an agreement that makes sure you’re protected.
If you have any questions, or think you might need a Development Agreement, you can reach us on 1800 730 617 or email firstname.lastname@example.org.