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Outsourcing Challenges: Software Development Contract


A software development contract can always protect you and your business when you are outsourcing a service. It provides you with some legal backup in case of any kind of dispute.

As the talent shortage grows, the need for outsourcing also becomes more common across the world. However, it’s crucial to do it properly for the maximum benefits. 

While misunderstandings and hidden clauses can trigger undesired issues, a software development contract creates a reassuring and safe space for both parties to avoid them. 

Also see: Why Top Tech Companies Need Software Outsourcing?

What is a software development contract?

A software development contract is not just a piece of paper. It is an essential roadmap that can help both parties to understand 

  • where they are at this moment and 
  • the plans they have together for the future. 

A standard contract must hold all the information about the time and the money that will be invested for the project, an outline of the work, responsibilities, and all other additional information that is important.

It can help you have a clear idea about everything and protect you from fraud and betrayal later.  

Types of the software development contract

These contacts generally contain different information and some legal documents depending on what an organization wants from its vendor. There are three types of software development contracts depending on the arrangement and the engagement model. 

1. Time and material contract 

You can choose time and material contracts to work on some specific projects which are limited in time. These projects really have some loosely defines scopes. With this type of contract, you will have absolute control over that particular project. Also, you will only pay for the work that is getting done. 

2. Dedicated engineering team contract 

This model is more beneficial for any long-term project with more ambiguous scopes. In these types of projects, the team you are hiring acts as an extended part of the organization. 

3. Product development model with a fixed price contract 

In this model, the vendor has to return some specific service for a price. Most small and medium projects generally use a contract with a fixed price and predetermined scopes. The organization does not prefer to have much control over the development process here.

What should be included in a software development contract?

Several things are essential for a good software development contract. 

Work phase

Work phases generally address the direction of a contract and the stops it is going to make. A good project must have a predefined calendar. 

You should also include additional information like the number of changes a client can make or if any changes are applicable under the work phase section. 

Development process

This section includes the product details, such as

  • how the final product should look, 
  • its work process, and 
  • what the client should expect from it. 

Property ownership

The details about the ownership and the rights of the intellectual property should stand in this section. It will help you avoid any kind of misunderstandings or conflicts with your kind in the future. 

Copyright ownership

This section should include a clear description of the materials to use in this project and the people who own the copyrights. The ownership structure of the software you are developing is also important. 


All the details about the payments, like the date of the payment, total cost, payment mode, and additional fees, if any, should be a part of this contract. 


A time period must be mentioned where you will make any repairs or any upgrade of the software. 


In this section, both the parties agree not to share any confidential information. It is necessary to protect the project in any situation and to stop people from misusing it. 

Dispute resolution 

A dispute resolution clause is significant to find out what steps should be taken if one part breaks the negotiation. It will help the team avoid future conflicts and provide a right to take legal action if needed. 

You may like this: How Outsourcing Will Affect The Economy?

Software development contract red flags

Several reg flags may pop up if the contract is not clear and specific enough. The lack of transparency and missing out on important information while making this contract can create major issues in the future. 

Certain reg flags may appear if the contract is not made properly.

  • The scope of the project is not clearly defined.
  • The responsibilities of the clients and the vendors are not mentioned properly. 
  • The warranty of the software or the quality expectations is explained vaguely. 
  • Acceptance criteria are not predefined. 
  • Payment and costing terms are not clear enough. 
  • No liability cap or indemnification.
  • Ownership or copyrights is not defined. 
  • The arrangement is unable to protect you legally. 

Wrap up 

Outsource software development can make the whole process a lot easier and less complicated. Signing a contract at the beginning can help you to have a clear idea about the project. It also provides you with a roadmap that makes it less time-consuming and more transparent. 

Contact our team for more detailed information.