This article is written by Mayank Bansal, pursuing a Diploma in Cyber Law, Fintech Regulations and Technology Contracts from Lawsikho.com. Here he discusses “What legal aspects you should remember while developing a technology where many different agencies and parties are involved”.
The revolution in the internet and technology has completely changed the work environment of every business corporations existing in the market. As today, almost every corporations from small scale to large scale do some kind of collaborations, outsourcing and pass some of their burdens to professionals available in the market. In other words, it could also be said that the technological revolution in the societies, has brought a new era of development, where almost every corporation is exploring a new model of inter-corporation collaborations, to boost their flexibilities, innovations, and competitiveness in the market.
Although there is no doubt that the process of outsourcing and inter-corporation collaborations brings in the innumerous benefits to the corporation, as it increases the efficiency of the corporation as the outsourced project is handled by the expert personnel. Further such outsourcing provides cost advantages to the organization, as they do not need to invest their time and money in the department, in which they do not have expertise.
However, with the innumerous benefits of outsourcing and inter-corporation collaborations, there remain few downsides, which need to be carefully determined to fulfill the milestone of the corporation. For this software/technology development agreement is generally signed between the parties and if this is properly drafted, it will ensure the dispute free operation of the corporation. In this paper, I will summarize the important clauses which must be made part of the technology/software development agreement. But before going to that let’s first find, what are the general disputes in technology/software development, when various parties or agencies are involved.
General Disputes in Developing Technology where different Agencies are involved
- Achieving Milestone: This is a general complaint in almost every kind of software development where different agencies are involved and there is nothing worse than paying a developer when the projects are not completed as has been expected by the corporation or the development are not completed in the time stipulated by the corporation.
- Integration of development with the existing system: The development could happen as has been expected by the corporation. However, there is always doubt, whether such development could be integrated into the existing structure of the corporation.
- Intellectual Property: This is another very major dispute in every technology/software development. If the development agreement between the parties remains silent or ambiguous on this aspect. Then there is a very high possibility of creating chaos between the parties, over the ownership of such development.
- Support: Every organization, who is getting the technology/software developed from 3rd party, would wish to have future support and maintenance from the developer over the technical glitches. But ever expected, what will happen if the development agreement remains silent on this aspect.
- Breach of confidential information: Often, in today’s technological developments, personal data of clients and employees are shared by the corporations to the developers. However, it is a general complaint in such developments, that data is not securely stored by the developer or the developer has sold/shared out the confidential information to the 3rd company or developer has not erased such confidential information after fulfillment of the agreement.
- Consequences of failure: with the rapid transformation in technologies and increased competition, completion of the proposed project within the deadline is a must for survival of the corporation. However, this is also a regular complaint that the developer does not accomplish the development within the proposed time. Therefore, unless the software/technology mentions the harsh consequences for the delay, there is no way to solve this critical issue.
These above-mentioned points are some of the critical issues which are often disputed in the majority of third-party software/technology development project on a regular basis. Although the roots cause behind such disputes are the vaguely drafted development agreements, because before entering into the agreement, parties do not realize the significance of the technology/software development agreements and in majority of cases parties simply refer to the template which are available online, without consulting any lawyer, which at the later stage leads to the above-mentioned disputes.
Therefore, it is important to understand the significance of the technology/software development agreements. It is a very critical agreement, which has the ultimate power to alter the relationship between both parties and safeguard their interest. Further, it is also important to understand that every agreement is drafted on completely different aspects, one cannot simply refer to the templates which are available online, without consulting any professional.
As a first step before entering into any kind of development agreement, a checklist should be created to understand the requirements of parties and to find the various aspects on which such agreement shall be drafted.
In this part of the article, I will refer to important clauses, which every kind of technology/software development agreement must include to ensure smooth and dispute free developments. Further, this part would also help the reader in creating the checklist for technology/software developments.
Clauses which every Technology/Software Development Agreement must include:
- Description of project: Obviously as a first step, parties should unambiguously define in their agreement the development services, which need to be completed. Further, it is important to attach a document of specification or blueprint of the proposed development, which helps in comparing the standards of the developed product with the proposed specification.
- Milestone & the cost of the project: every payer would like quality service with the cost certainty. However, the cost of every kind of development projects is linked to the development time. Unfortunately, it is generally found that the cost and time of software/technology development blow out the pocket of the payer/client. However, the best way to avoid this is to break down the development into separate parts and fixed the delivery time of each part. Accordingly, the specified funding shall be released to the developer.
- Transfer of Intellectual property: This clause would determine, who will own the ownership over the source codes or any other material, which is produced under a development agreement. This is the most contested clause between the client and developer and often came as a deal-breaker for the development agreement.
Majorly two kinds of ownership options are preferred by the parties, which range from sole ownership of the client over the development, to the sole ownership of the developer with the client merely having a license to use his source codes/software.
Both parties need to determine their needs and shall negotiate over this issue accordingly.
- Integration of Software: As a client/corporation you would certainly want to oblige your developer to integrate his/her development to your existing software and system, for this you need to have such clause in your agreement. Further, such a clause should also clarify, whether the developer integration services would be subject to separate charges or not?
- Warranties and Indemnities: Every development agreement shall contain this clause. This clause came as a promise from the developer that his/her development will work the way proposed by the client/corporation, and that the developer is liable to fix it free of charge if it doesn’t. However, for developers’ essential point to remember is to clearly describe the period till which such warranty will last and thereby avoid making indefinite warranties.
This clause might also include a warranty from the developer, that his/her development does not infringe any third person intellectual property rights.
- Confidentiality: Often, today’s technological developments require the transfer of confidential information of the corporation and their client to the developer. Therefore, to safeguard the confidentiality of the corporation, the technology/software development shall include this clause which bounds the developer to keep the confidential information securely. Further, this clause shall also include a time frame after which the developer shall be bound to erase all the confidential of the corporation from his/her database.
- Termination: This is a must-have clause for this kind of agreement. The clause comes handy when a party to the agreement want to terminate any agreement either due to breach of any term or for any other reason set out in the agreement, which empowers a party to terminate an agreement. This clause shall be drafted carefully and clearly state the answer to the following questions:
- Who can terminate the agreement?
- Process of terminating the agreement.
- Circumstances under which a party could terminate the agreement.
- What will happen to the development which took place prior to termination?
- What will happen to confidential information which was shared by the parties with each other?
- Support and Maintenance: Corporation/client shall always consider for future support and maintenance while getting any product developed through the third party. It is recommended that in a development agreement the corporation/client shall negotiate with the developer on this clause and set out the fee which would be charged by the developer on the annual basis for such support and maintenance.
- Disputes Resolution: while going to a court for settling the dispute is considered very expensive and time-consuming process. Therefore, it is important to have a clause which prescribes some procedure for resolving the disputes. Parties should prefer arbitration or mediation as their dispute resolution mechanism.
Having Technology developed from different parties/agencies is a very complex process. It is vital that both the corporation/client and the developers are on the same page regarding the development work be it a cost of the project, timeframes of development or the intellectual property rights, etc. Here, the technology/software development agreement plays an important role by ensuring the smooth and dispute free operation of the whole project. Therefore, it is vital to understand the significance of this agreement for every corporation/client, who is outsourcing any kind of development project to third party agencies.
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