Contractual Software Development Models
As lawyers in the field of IT, we are preparing contracts for the creation of software for both developers and customers. The contract must take into account the peculiarities of various software development models, highlight the risks of the client arising in this connection and try to level them.
Today we will look at the most popular terms of custom software development in terms of risk sharing between the customer and the contractor and give recommendations for reducing them at the contract level.
Any of the following software development models can be implemented on the basis of our framework agreement with applications in the corresponding modification.
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Terms of use. It is used in standard projects with clear solutions and requirements amenable to detail. Requirements for the result are made in a separate technical task. Fixed deadlines and the cost of their work.
Customer benefits. Clear budget with specific requirements for the result.
Risks of the customer. The complexity of changing product requirements during its development. As a result, such conditions are poorly suited to the development of non-standard software and complex systems.
A way to reduce risk.
Include the following terms in the Software Development Agreement :
1) phased acceptance of work;
2) payment for the accepted stage;
3) refusal to continue work without financial sanctions.
In this case, the customer will be able at any stage to put the contractor before the choice to continue working on the changed conditions or leave the project, reducing costs.
Benefits for the performer. Possible in the case of a ready-made solution that does not require substantial refinement.
Performer risks. The risk of non-payment upon completion of work or the excess of actual development efforts over the project price.
1. The customer may refuse to accept the results of work in connection with their actual or “imaginary” non-compliance with the requirements of the technical specifications. This option can be used by the customer to reduce the cost of work performed or write off project costs that have lost its value by the time of completion.
A way to reduce risk.
Include in the contract a combination of conditions:
1) the maximum possible prepayment;
2) phased acceptance of work;
3) the impossibility of the refusal of the customer from the contract without financial sanctions.
At the end of each stage, make up the reporting documentation and record the acceptance of the results by the customer. It is desirable to issue a phased acceptance by signing a bilateral act. This option provides maximum guarantees. But it is possible to agree on the provision in electronic form of a unilateral report, which must be considered by the customer within the established period. Silence equated with agreement with the report. The main thing is to properly describe in the contract the acceptance procedure and its legal consequences.
2. The project implementation may take more time due to circumstances depending on any of the parties.
Recommendations for reducing risks. Try with maximum responsibility to approach the development of technical specifications. Indicate in it the areas of work for which the customer is responsible or the third parties involved by him. Describe the strict requirements for hardware, software and information systems for which the software is developed. Include in the contract conditions on the implementation of new software requirements for an additional fee. The duty of proving compliance with the requirements of the technical assignment is assigned to the customer.
Terms of use. The scope of work can not be sufficiently determined in advance. Works are performed on the basis of individual tasks. Tasks are given for a short period of time. In this case, the customer relies on the professional level of the performer.
Customer benefits. Attracting a professional team or specialists to certain areas of work. Flexible change in product requirements. Payment only actually performed work.
Risks of the customer. At the stage of establishing interaction with the customer, the total cost of the work may exceed expectations.
Ways to reduce. In the annex to the contract it is necessary to detail the prices for the work of individual specialists of the contractor. Include in the contract conditions on the procedure for setting the task, including its preliminary assessment by the performer.
Benefits for the performer. Full payment of the time actually spent on the task.
Performer risks. Tasks are set for a short period, therefore they are not fixed in the form of separate technical tasks, specifications or annexes to the contract. Task setting and acceptance is performed using e-mail or project management systems.
Ways to minimize. It is necessary to supplement the contract with a section on electronic document circulation using a simple electronic signature. In this case, the developer will remove a lot of customer questions on the content of the problem, the correspondence of the result and adequate billing.
Terms of use. Used when hiring a professional team or a narrow specialist to solve non-specific tasks of the customer on a long-term basis. Assumed a high level of trust performer.
In our reality, a subscription agreement is often used within a group of companies when allocating an IT infrastructure or a development team into a separate organization to optimize taxation or business processes.
Customer benefits. The possibility of setting any tasks within the competence of the contractor, the rapid change in the requirements for the results for a fixed cost.
In a group of companies, it is used to receive benefits on insurance premiums from the payroll fund of developers.
Risks of the customer. Incomplete loading of the contractor and, as a result, overpayment in comparison with the work under the Time & Materials scheme.
When using a subscription agreement for optimization within the holding, the main risks are:
1) excessive simplicity of the contract, as evidence of a pretend transaction.
2) incomplete and untimely fixation of work performed under the contract.
Remember that the inconsistency of the terms of the contract with the usual business practice in relations between independent persons may indicate a pretense of the transaction in order to obtain an unreasonable tax benefit. A similar conclusion can be made on the basis of an analysis of the documentation of the interaction of the parties.
A way to reduce risk. Include in the contract a condition on the possibility of revising the amount of the subscription fee following the results of several reporting periods. You can provide a simplified procedure for changing the cost of services as a result of notifying the contractor for a certain period.
To eliminate tax risks, it is necessary to provide for a reporting procedure with details on the work performed during the reporting period.
Benefits for the performer. The contractor is provided with stable financing for the period of the contract.
Performer risks. Excess of the amount of actual work on the expected, taking into account the agreed amount of subscription fees.
The way to eliminate the risk. Set a limit on the amount of work performed for a monthly fee. If the established limit is exceeded, payment for the excess at a fixed rate or separate approval of the cost of work above the limit should be provided for.
Check your contract. Is it sufficiently effectively distributed risks based on the chosen software development model?
A source
Today we will look at the most popular terms of custom software development in terms of risk sharing between the customer and the contractor and give recommendations for reducing them at the contract level.
Any of the following software development models can be implemented on the basis of our framework agreement with applications in the corresponding modification.
')
1. Fixed Price Agreement (Fixed Price)
Terms of use. It is used in standard projects with clear solutions and requirements amenable to detail. Requirements for the result are made in a separate technical task. Fixed deadlines and the cost of their work.
Customer benefits. Clear budget with specific requirements for the result.
Risks of the customer. The complexity of changing product requirements during its development. As a result, such conditions are poorly suited to the development of non-standard software and complex systems.
A way to reduce risk.
Include the following terms in the Software Development Agreement :
1) phased acceptance of work;
2) payment for the accepted stage;
3) refusal to continue work without financial sanctions.
In this case, the customer will be able at any stage to put the contractor before the choice to continue working on the changed conditions or leave the project, reducing costs.
Benefits for the performer. Possible in the case of a ready-made solution that does not require substantial refinement.
Performer risks. The risk of non-payment upon completion of work or the excess of actual development efforts over the project price.
1. The customer may refuse to accept the results of work in connection with their actual or “imaginary” non-compliance with the requirements of the technical specifications. This option can be used by the customer to reduce the cost of work performed or write off project costs that have lost its value by the time of completion.
A way to reduce risk.
Include in the contract a combination of conditions:
1) the maximum possible prepayment;
2) phased acceptance of work;
3) the impossibility of the refusal of the customer from the contract without financial sanctions.
At the end of each stage, make up the reporting documentation and record the acceptance of the results by the customer. It is desirable to issue a phased acceptance by signing a bilateral act. This option provides maximum guarantees. But it is possible to agree on the provision in electronic form of a unilateral report, which must be considered by the customer within the established period. Silence equated with agreement with the report. The main thing is to properly describe in the contract the acceptance procedure and its legal consequences.
2. The project implementation may take more time due to circumstances depending on any of the parties.
Recommendations for reducing risks. Try with maximum responsibility to approach the development of technical specifications. Indicate in it the areas of work for which the customer is responsible or the third parties involved by him. Describe the strict requirements for hardware, software and information systems for which the software is developed. Include in the contract conditions on the implementation of new software requirements for an additional fee. The duty of proving compliance with the requirements of the technical assignment is assigned to the customer.
2. Contract on a pay-as-you-go (Time & Materials)
Terms of use. The scope of work can not be sufficiently determined in advance. Works are performed on the basis of individual tasks. Tasks are given for a short period of time. In this case, the customer relies on the professional level of the performer.
Customer benefits. Attracting a professional team or specialists to certain areas of work. Flexible change in product requirements. Payment only actually performed work.
Risks of the customer. At the stage of establishing interaction with the customer, the total cost of the work may exceed expectations.
Ways to reduce. In the annex to the contract it is necessary to detail the prices for the work of individual specialists of the contractor. Include in the contract conditions on the procedure for setting the task, including its preliminary assessment by the performer.
Benefits for the performer. Full payment of the time actually spent on the task.
Performer risks. Tasks are set for a short period, therefore they are not fixed in the form of separate technical tasks, specifications or annexes to the contract. Task setting and acceptance is performed using e-mail or project management systems.
Ways to minimize. It is necessary to supplement the contract with a section on electronic document circulation using a simple electronic signature. In this case, the developer will remove a lot of customer questions on the content of the problem, the correspondence of the result and adequate billing.
3. Subscription Agreement
Terms of use. Used when hiring a professional team or a narrow specialist to solve non-specific tasks of the customer on a long-term basis. Assumed a high level of trust performer.
In our reality, a subscription agreement is often used within a group of companies when allocating an IT infrastructure or a development team into a separate organization to optimize taxation or business processes.
Customer benefits. The possibility of setting any tasks within the competence of the contractor, the rapid change in the requirements for the results for a fixed cost.
In a group of companies, it is used to receive benefits on insurance premiums from the payroll fund of developers.
Risks of the customer. Incomplete loading of the contractor and, as a result, overpayment in comparison with the work under the Time & Materials scheme.
When using a subscription agreement for optimization within the holding, the main risks are:
1) excessive simplicity of the contract, as evidence of a pretend transaction.
2) incomplete and untimely fixation of work performed under the contract.
Remember that the inconsistency of the terms of the contract with the usual business practice in relations between independent persons may indicate a pretense of the transaction in order to obtain an unreasonable tax benefit. A similar conclusion can be made on the basis of an analysis of the documentation of the interaction of the parties.
A way to reduce risk. Include in the contract a condition on the possibility of revising the amount of the subscription fee following the results of several reporting periods. You can provide a simplified procedure for changing the cost of services as a result of notifying the contractor for a certain period.
To eliminate tax risks, it is necessary to provide for a reporting procedure with details on the work performed during the reporting period.
Benefits for the performer. The contractor is provided with stable financing for the period of the contract.
Performer risks. Excess of the amount of actual work on the expected, taking into account the agreed amount of subscription fees.
The way to eliminate the risk. Set a limit on the amount of work performed for a monthly fee. If the established limit is exceeded, payment for the excess at a fixed rate or separate approval of the cost of work above the limit should be provided for.
Check your contract. Is it sufficiently effectively distributed risks based on the chosen software development model?
A source
Source: https://habr.com/ru/post/295948/
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