A well-written IT contract is an insurance policy for an IT project. Anyone involved in the drafting and negotiation of IT contracts must follow a certain methodology to achieve the optimal result. Of course, the methodology depends on the type of IT project and the services provided. The drafting phase is the most appropriate time to adjust the contract in the best way. This can save money and help avoid further disputes when done correctly.
To properly adjust the contract, a good understanding of the technical and legal issues involved in the IT project and the kinds of issues that can arise during and after project implementation is required. Therefore, the contract has to be specific, not general. Many managers overestimate their understanding of the technical side of IT projects and the associated legal risks, often excluding technicians and legal experts from the writing. But this limits the ability to assess potential risks and address them in the right way at the right time.
First of all, don’t delay in getting started; Contract negotiations on IT projects take longer than you might think at first. Do not leave the drafting of the contract to the last minute. Contract problems multiply in the rush. Therefore, consider legal and technical risks at the contract design stage.
Second, set your goals. Do not try to fit all the contractual clauses perfectly at once. Use the ROI method to identify the parts of your IT project that are most critical and profitable for you. Once these parts are identified, describe them in the contract. It is always useful to have multiple versions of the same contract clause during negotiations. Your objectives must be defined in a way that is accepted and agreed to by all parties involved. For example, setting technical goals and applying specifications are crucial for service level agreements.
In IT contracts it is vital to check the parties that foresee the scope of the license or transfer of copyright in the created software. Software developers are interested in maintaining the necessary rights for software distribution because individual software, once created for a particular company, can easily be applied elsewhere and then marketed as standard software. On the contrary, the client who financed the software development very often does not want to leave any economic copyright to the software developer. One of the most important parts of an IT contract is the detailed description of the rights granted when using the software. In case of granting a license, you must check if the license is exclusive or non-exclusive, for a defined or indefinite period; as well as the territory it covers; how many users will be able to use the software at the same time; under what conditions the customer may transfer the software to third parties; whether the license entitles the customer to independently modify the software, etc. Here it is important to agree on the source code of the software, for example, to indicate whether the source code is part of the contract or not, because the further development of the software depends on it.
In addition, it is also very important that the contract clearly states the quality requirements for the software, warranties and liability, the duties of the parties in the software implementation process, project management methods, testing, resolution of disputes, payment terms, exit provisions, agreement. on the additional maintenance of the software, as well as the method of acceptance and transfer of the results of the intermediate and final work. By accepting the final version of the software, the customer must confirm that the software corresponds to the technical specification provided in the contract and works without substantial defects. After the signing of the acceptance-transfer act, the software cannot be rejected due to minor defects that normally always exist in the software. Before accepting final IT software jobs, it is advisable to agree on a specific period during which the final version of the software will be tested for functionality.
It is helpful for the software producer to reduce liability to the extent permitted by law. Generally, the liability is limited by a certain monetary amount and the loss that occurs only due to certain events. In the part determining liability, a laconic wording that the damage is compensated in accordance with the law may seem more beneficial to the buyer.
Still, parties often underestimate the contract-writing process in the hope that friendship can resolve all conflicts in IT projects. But life teaches us that when a conflict arises, the parties are more likely to rely on the wording of the contract than on oral promises.