Laneways Software

Software Development Contract: What Every Beginner Needs to Know

This guide will help you understand the meaning of a software development contract, the different types you can choose, and what to include in your agreement.

In today’s fast-paced world of technology, a robust software development contract will come in handy to help you avoid a mix-up in expectations and details. Knowing what to include and look for in a legal contract will protect you adequately and ensure you don’t miss the mark.

What is a Software Development Contract?

It is a legal document that dictates how the software development vendor will provide its services to the client prior to starting a project. The document binds both sides to perform specified obligations within the agreed period.

Types of Software Development Contracts

There are four types of software development contracts in the United States and worldwide. When choosing one, be sure to consider the scope and size of your project, budget, time, and the level of the client’s involvement. Each of them comes with its advantages and disadvantages. Let’s take a glimpse into these different contracts.

Types of Software Development Contracts | Laneways.Agency

Fixed Bid

A fixed bid defines the project’s scope and the price that the client is willing to pay. Mostly found on freelance platforms, these contracts are made for small tasks.



Fixed Budget

In a fixed budget for software development, you agree with the developer that the software to be made has a targeted budget. Therefore, exceeding the budget may lead to issues.



Capped Budget with Accelerated Bonus

Capped Budget with Accelerated Bonus software development contracts Laneways.Agency

These legal contracts are similar to the fixed budget type, but the client provides an incentive for faster delivery.



We build custom software with modern solutions in mind for any business and sizes!

We build custom software with modern solutions in mind for any business and sizes!

Time & Materials

Time and Materials contract is where you agree to pay the development company as per the number of hours they worked.



The Importance of a Software Development Contract

In case of an issue during software development, a written contract may help you avoid burning your fingers. This crucial safety net can save both the IT company and the customer from:

Main Points of a Software Development Contract

The following are some of the most important things included in most water-tight contracts.

Main Points of a Software Development Contract software development contracts | Laneways.Agency


This section is one of the most crucial parts of every contract. It describes all the software development services that a client expects to receive from the vendor. It usually specifies the project’s scope and how to handle any request for changes.

The contract should:

Time & Billing

Fees and time tend to be the leading hang-ups in most project plans for software development. So be clear by setting the cost ranges for the developer, quality assurance, and project manager.

Write down any cost to avoid ambiguity and help all the parties allocate resources well. Additionally, be sure to set up the billing process in advance. The following are some of the things to answer:

We build custom software with modern solutions in mind for any business and sizes!

We build custom software with modern solutions in mind for any business and sizes!

Tools & Processes

Your software product’s complexity and nature may force the developers to employ various tools, designs, and development processes.

The contract needs to lay down standard provisions, such as:

Acceptance Testing

Upon which side will the acceptance testing be done, client’s or developer’s side? Since this testing mostly occurs after completing each development phase, the contract may have to include a detailed project plan in this provision.

The contract agreement will include things such as:

Documentation & Intellectual Property

Documentation & Intellectual Property software development contracts | Laneways.Agency

Under the US copyright law, the product’s author is legally the owner of his work. Thus, the developer needs to either provide intellectual rights to the client or grant a license to them. Therefore, the specification to be provided here include:


It is necessary for the software development agreement to describe the indemnities and warranties terms in the event of a mishap. The client needs to know the compensations for any damage or loss from the product in certain circumstances.

They include:

Privacy Policy

It is a description of the confidentiality of the developer, customer, and end-user. The loss of personal information through theft, leaking, and selling can be detrimental to the parties involved.

When crafting the contract, define the privacy policies that will protect the proprietary data, private client data, and other sensitive data from getting into the hands of competitors and fraudsters.

In most cases, the private policies survive the contract itself, i.e., they should be maintained even after the contract has ended.

The software development contract may also describe:


With a solid software development contract, you can rest assured that you’ll not get the short end of the stick if the project fails. It shields you from any unmet obligation related to confidentiality, services, billing, time, testing, and other crucial elements of a project.

Since a software development and design contract is a legal agreement, we recommend that you engage a lawyer’s services to help you create and interpret one. Alternatively, a reputable software developer should assist you in crafting it and delivering everything.

If you’re looking for a software developer that meets all the obligations in every contract and adheres to the law, consider Laneways Software & Digital. We will first understand your business’ ins and outs and select the best type of development agreement. Call us now for more information!

Jerome Rault

Jerome Rault

Cloud-based technology advisor, consultant, and investor. CEO Laneways Software & Digital

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