LEGAL ASPECTS OF SOFTWARE DEVELOPMENT AGREEMENT

By: Robby Yusaka Gura

I.	Legal Matters
A ready to use software, which is usually subject to a software license agreement, may not suitable to specific application that the user has in mind.  In this case, the software may be developed to meet such specific needs of the potential user.  This kind of software is known by a variety of name including bespoke software, tailor made software and customized software.  A contract for the development of this kind of software is commonly titled s software development agreement.
The main articles that should be present in a software license agreement are as follows:
•	Method of payment.
•	Passing of title (Intellectual Property title).
•	Specifications of the software.
Usually, the software developer may want the payment to be made by installments (e.g. monthly) which are to continue for a period until the development is completed.  The monthly installment is usually based upon man-days, disbursements relating to such matters as consultants, the use of materials, travelling expenses and computer time.  The customer (or user) on the other hand would want to make payment only at the completion of certain predefined stages of development, or sometimes called milestones method.
Whilst payment for services actually rendered may seem the fairest way, payment rights are a matter for negotiation in each case.  Either way, the agreement will always stipulate a time limit according to which a certain predefine stages should be completed and with the customer receiving interim written reports.
The issues regarding the title of the software also rise certain attention by both developer and customer.  A software development may give rise to “cross-rights” in customer and developer, the effect of which shall cause both the customer and developer of not having the right to exploit commercially the developed software without having obtain the consent from the other.   The manner in which the parties in particular case will address the issue of title depend greatly on the purpose for which the customer  has requested the customization of the work.    For example, if the customer is not concerned that the use of software by others would create unwanted business competition, it may be willing to recognize full ownership rights in the developer.  The contrary would be the case of the object of the customer in acquiring the developer services is not to obtain a ‘saleable’ product
Before any software development may start, it is essential to be agreed upon complete specifications of the software to be developed.  If the customer does not have the ability to identity its specific needs, then a consultant should be engage for the task, rather than leaving the task in the hand of developer.  Of course there may be a case where the developer do obtain the skills to identify the client’s specification.
A software development project usually involves high degree of interaction between the personnel from the developer and customer.  Therefore, articles regarding confidentiality and non-solicitation of employees are of some importance.  Additionally, the developer is likely to seek some undertaking from the customer regarding access to the designated equipment at all reasonable time for purposes associated with the project.  The customer, in turn, will seek a way to control the number of developer’s employees engaged in the project and may also insist upon written information regarding each relevant employee and the right to veto the use of particular employee.
Other features found in a software development agreement are not dissimilar to a software package.   Provisions regarding delivery, installation, and acceptance testing are likely to be similar.  If title is to remain with the developer, the customer may insist upon the source code escrow article and an intellectual property rights indemnity article whist the condition the license is granted maybe the same as one would expect to find in a packaged software license agreement.  
A form of warranty is likely to be insisted by the customer to the effect that the software will perform substantially in accordance with the predefined specifications and that the developer shall rectify any errors during a specified period of time
Security and confidentiality articles and the method of limiting the liability for the damages shall be substantially the same as found in a packaged software license.

II. Checklist of Key Clauses on Software Development Agreement
The followings are checklist on a Software Development Agreement:
1.	Charges and Payment	:
•	Is there a progress fee payable at specified time intervals or at specified stages of develpoments?
•	In what circumstances can the periodic fee be increased by the developer?
•	Is the developer required to verify expenses?
•	What is the penalty for the late payment?
2.	Development stages	:
•	Have they been specified?
•	What is the penalty for the failure to complete the development of a stage as scheduled?
•	Does the developer have any interim obligations?
3.	Alterations to specifications	:
•	What are the consequences of an alteration to specifications by the customer after the execution of the agreement?
•	What are the customer’s obligations in these circumstances?
•	What are the supplier’s rights in these circumstances?
4.	Delivery	:
•	Is the final delivery date specefied?
•	What are the consequences of a failure to deliver on time?
5.	Installation	:
•	Are the developer’s obligations defined?
6.	Acceptance testing	:
•	Is acceptance testing defined?
•	What specifications are to be used?
•	At what point is the software deemed accepted?
7.	Title	:
•	Is the titled passed to the customer?
•	If so, at what point?
•	If the developer retains the title, have terms of license been agreend upon?
8.	Security	:
•	What are the obligations of each party in relation to the security of information and materials belonging to the other?
9.	Supplier’s staff	:
•	Have the individual personnel been specified?
•	Is there a limitation on the number of personnel involved in the project?
•	Does the customer have any right of veto against particular personnel of developer?
10.	Use of customer’s resources	:
•	Has an agreement been reached on the extent which, and the terms on which, the developer may use customer’s equipment during the project?
11.	Maintenance	:
•	Has considerations been given on the future maintenance of the product?
12.	Warranties	:
•	Is there any warranties offered by the developer?
•	Is there a specified warranty period?
•	What are the developer’s obligations on breach of warranties?

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