Development Contracts

A software Development Contract is an agreement entered into between a company and a software developer where the company mentions their concepts and requirements. The developer then goes on to create the software based on the time limits specified by the company.

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Elements in a Development Contract


Collateral Warranties

Practical Completion


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Key points of Development Contract

Services to be provided

Project time and cost

Acceptance testing

Intellectual property rights


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Types of Development Contract

Time and materials

This type of agreement is the most commonly used in development outsourcing. By signing such type of a contract, you agree to pay for the time your partner spends working on your project.

Fixed bid

Fixed bid contracts define, on one hand, the scope that should be delivered, and, on the other hand, the fixed price that is to be paid. This type of agreement is best suited for contracting vendors for small tasks.

Fixed budget

The fixed budget contract is a variety of fixed bid. In this model, the project budget is also agreed before the start, however, the scope can change as the development progresses.

Capped budget with accelerated bonus

This model also involves setting a definite budget, however, the development company gets the bonus for delivering the projects ahead of the schedule. While you may be more or less sure about the budget, there is a risk that the vendor may sacrifice the development quality for time.

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Types Of Development ContractImage Description

The basic version of this agreement contains all those terms and conditions you might expect to find in any software development contract, but few bells and whistles. The core clauses cover the manner in which the development services will be provided, the transfer of intellectual property rights, licensing of rights in third party works, charges, payment terms and software-specific warranties. Standard short-form boilerplate clauses are also included.

The standard version of the agreement includes everything in the basic version, plus provisions covering the following matters:

  • set-up services
  • developer access to the customer's computers/networks
  • acceptance testing of the software by the customer
  • time recording
  • indemnity protection, for one or both parties

the premium agreement contains all the terms and conditions that are in the standard agreement, with the following additions

  • a formal change control procedure
  • a software escrow clause
  • publicity rights and restrictions
  • a clause prohibiting the soliciting of personnel
  • export law restrictions