Overview of a Software Development Agreement

A Software Development Agreement is a contract that specifies the terms and conditions under which a firm will develop software for a customer. Effectively, you use this contract to specify the scope of the work. This includes the deliverables that the software developer must complete; the payment terms; and any quality-related metrics that he or she must meet.  If you are starting a new software project, this is likely a fairly large outlay of funds.  Make sure that the terms and conditions are set before you start.

What is in a Software Development Agreement?

A software development agreement must cover these areas:

Scope of Work

The work necessary in the development of the deliverable.  Depending on the type of software project, the scope of work can also entail documentation on the system; the architecture; and the environment in which the software will deploy.  The software development agreement can also specify the scope of work that will not be performed.

Timelines and Deliverables

A good software development agreement will protect the parties by establishing clear timelines and deliverables for the project.  Keeping in mind that most software projects have an element of ambiguity in terms of requirements, the timeline keeps both parties in check and on track.

Payment Terms

Along with the deliverables and timings, the software development agreement can specify when payments are due.  Examples of payment terms include milestone-based. These are payments to collect upon fixed milestones. Also, time & materials in which the payment amount based on the time and effort spent on the project. Additionally, a fixed fee, which is similar to milestone-based where all payments are fixed for the duration of the project.

Intellectual Property

Based on the type of project, the software developer can keep the intellectual property rights. Or, as is more common, the client.  

Responsibilities of the client

In certain circumstances, the software developer may need to access resources that only the client has access to. If these are necessary for the service the developer will perform, this should be put in.

When should you use a Software Development Agreement?

A software project typically involves a large budget as well as an investment of time by the customer. The software development agreement will lay out all the conditions so that both parties can have a successful project.


A well laid out software development agreement lays out the foundation of a good working relationship with the customer.  It should protect both parties from issues related to poor requirements, late deliverables, or poor quality.  Always ensure that the contract is drafted so that both sides are comfortable with the terms.

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