The Mistake – “Just Sign Here” Software Development Contract Problems

Author: A. Howard Metro Date: 03/01/2013

Categories: Corporate and Business Law

Businesses often call us about disputes involving signed contracts that require payments of thousands of dollars for software development, although the software was never fully developed or made functional. Unfortunately, our assistance would have been far more valuable before the software development contracts were signed. Too often, form software development contracts protect only the developers. What preventative actions can you take and how do you know when you are at risk?

Initial Concerns

You should immediately be concerned if you are presented with a multipage agreement with words like “limited liability” and “limited warranty.” Too often, clients rely on the developer to include the “terms” that were orally promised. Such reliance can be a significant mistake. In many cases, software developers limit their liability if something goes wrong.

You need to know to what standard of performance the developers will be held. Many times, the contract is simply a “labor agreement” which promises only set work, without a requirement of quality or usability. You may end up with a lot of software code without any use.

If the contract is in writing and contains the following provision: “This is the entire agreement between the parties and no prior oral statements or writings shall vary the terms contained herein,” then nothing that was promised will be admitted by a judge in a legal dispute to modify the terms of the written contract unless it is clear.

Two Simple Solutions

Never sign a software development contract without the advice of an attorney. Our attorneys are aware of the pitfalls of one-sided contracts and the specific dangers of software development contracts.

We can provide advice on how to limit your risk and what might go wrong. For example, clients who want software delivered by a certain date must build in penalties or reductions in price when deadlines are not met. Also, a customer must ensure that if the software fails to live up to its promised functionality, then it is not deemed to be acceptable. Often, due to poor contractual language, a customer will be required to pay for nonfunctioning software. Plainly, an ounce of precaution is worth a pound of cure. Paying your attorney to do a thorough analysis of a contract and provide advice is much easier to digest than huge litigation fees.

In any software development contract, a customer should specifically ensure that the contract includes a “Scope of Work” that accurately states and describes the results sought. The Scope of Work must be clearly stated from the customer’s perspective (seeking to broaden the Scope of Work description), not merely for the benefit of the vendor (who wants to limit the Scope of Work description). For example, if you expect the software to interact with Quickbooks, then it is not enough to state that the newly-developed software will “interface” with Quickbooks. The software must properly interact with Quickbooks to export client accounts to Quickbooks in order to effectuate billing and cost controls. Simply stated, each process that the developer has outlined as functionality should be explained in detail in a manner that is consistent with the client’s goals and an expectation of functionality included in the contract language itself.

We have seen many disasters and greatly prefer that our clients allow us to head off these issues at the beginning.

Howard Metro and Adam Van Grack are two of our attorneys with experience in drafting these types of contracts and others. Howard can be reached at (301) 251-1180, ext. 303 or, and Adam can be reached at (301) 251-1180, ext. 309 or