There are 4 points every software agency should look at in a Contract.

IT industry is always booming and with this growth, several software development agencies are cropping up.

Many freelance developers and software agencies make this one mistake:

They rely on templates when entering into a software development contract with a client.

A recent case in the UK affirms how important it is to have a well-drafted software development contract.

Rolls Royce hired a software development agency to create some software for them.

As it often happens in software projects, a delay occurred and milestones were not met.

Both parties blamed each other for the delay.

Rolls Royce sent the termination notice for failing to achieve milestone dates.

The suit was ultimately awarded in favor of Rolls Royce, and compensation of €5 million was given to RR.

But there's a learning lesson for you here.

Instead of suffering the same loss, make sure to remember these 4 Points in your Contract:

1) Clarity on Deliverables:

Never play the vague game when it comes to timelines.

In this case, disputes arose regarding the milestone dates and what was meant by “Technical Go-Live”.

And therefore the question was on what Agency was required to do to achieve it.

The deliverable was not clear.

And because of that, there was no clarity on milestones that had been achieved before the deadline.

2) Make Sure The Milestones Are Clear:

Here, they had agreed on a plan that specified an “Anticipated timeline”.

There were no specific dates or months for each step to be achieved.

When no specific timeline is given, the court reads it as “reasonable time” - and hence, no breach of timeline was held.

However, later on, they agreed on a subsequent plan that specified specific dates for each stage.

Here, the court read it as “time is of the essence” and hence, the breach was upheld.

So don't make this mistake. Be clear.

Specify dates, and months, and get as specific as possible.

3) Termination Options Must Be Clear:

Let’s face it. Smooth sailing is never guaranteed.

Disputes may happen and minor breaches will occur.

A termination option should be carefully drafted.

A grace period should be given to cure minor breaches and the procedure of termination should be clear.

In this case, the time was of the essence.

And because of that, the court said that Rolls-Royce was entitled to terminate.

It doesn't matter how trivial the delay is, it constitutes a breach.

4) Always Keep A Cap On Damages:

In this case, the original amount claimed by Rolls Royce was €20 million.

But the court held that the agency owed Rolls-Royce €7.1 million.

But it was subsequently reduced to €5 million, due to a cap provided in the contract.

Service providers should especially negotiate and limit their liability.

But make sure it's reasonable too.

The expectations must always be negotiated beforehand.

Another area of dispute in this case was the project management approach that ought to be used - waterfall or agile.

While the agency initially agreed on the waterfall approach, post-contract, they wanted to change the approach.

This further led to the collapse of their commercial relationship.

That's it!

I hope you got to learn from the mistakes of another agency.

If there's even a slight opening for a chance of dispute because of your contract, fix it ASAP.

Bigger projects obviously carry huge rewards.

But they also carry bigger risks.

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