Software development outsourcing contract template: A complete guide

Outsourcing software development has been a popular technique for companies looking to optimize their operations while lowering costs. Yet, outsourcing software development can be complicated with numerous legal and financial concerns. 

The contract between the client and the outsourcing company is essential to outsourcing software development. A well-drafted contract can guarantee that all parties understand their rights and responsibilities, lowering the potential for disagreement.

This blog will provide a complete guide to software development outsourcing contract templates. 

You will look closely at what a contract should include and get access to free templates. We will also cover critical considerations when crafting a contract, and tips for customizing them. Let’s get started! 

Table of Contents

What is software development outsourcing?

Software development outsourcing is the popular practice of hiring an external company or team to develop software for a business. This technique allows businesses to optimize their businesses without having to hire an in-house development team. 

Outsourcing companies are generally located offshore or nearshore, where labor costs are cheaper than in the client’s home nation. This allows enterprises to profit from cost reductions. 

On the other hand, outsourcing software development brings various challenges, such as managing communication and assuring quality control, which must be carefully evaluated and addressed to achieve a successful outsourcing collaboration.

What is a software development outsourcing contract?

To begin with, an outsourcing contract is a legally binding document that details all aspects of an outsourcing operation. It includes a detailed description of the tasks to be executed by the third party, the client’s expectations and requests, and the deadlines that must be reached. This contract protects both parties’ interests.

In terms of security, outsourcing contracts cover a wide range of legal complications, including intellectual property rights, the protection of personal information, and indemnities to keep you and the outsourcing partner safe. A good contract provides legal protection to both parties.

A properly drafted software development contract is a form of protection that can prevent losses by ensuring clarity and predictability in business dealings. 

Such a contract guarantees that the desired outcome will be delivered within a specified timeframe. It also clarifies the cost of implementation and ensures that the client retains ownership of the resulting product. Moreover, it offers guidance on addressing issues that may arise during the project and reduces the associated risk.

Types of software development outsourcing contracts

Whether you are looking for software outsourcing services or types of offshore development, it’s vital to grasp the different types of software development outsourcing contracts. Here are three main types of outsourcing contracts that you need to consider:

Dedicated Development Team

Certain companies prefer to have a dedicated team working exclusively on their projects rather than hiring contractors who may be unable to prioritize their work due to other commitments or clients. 

Dedicated teams typically include a full-time or part-time project manager and a Quality Assurance engineer, ensuring the project receives the necessary attention and oversight.

Pros: 

• Full-time attention and a high level of commitment from developers
• Scalability and flexibility
• Access to a variety of dedicated resources
• Cost savings
• High-quality output

Cons:

• Difficulty in managing remote teams
• Dependency on the team
• Higher cost

Fixed Price

The fixed price model means the contractor commits to delivering a high-quality product within a specified timeframe for that price. If there are any delays in delivering each milestone or additional work is required after the completion of a milestone, no extra payment will be required. This model protects clients against unexpected costs that may arise during development.

Fixed Price model protects clients from unexpected cost

Pros:

• Clearly defined milestones and deadlines
• Greater project predictability
• Predetermined cost
• Minimize client-side project management

Cons:

• Lack of collaboration between the client and the contractor
• Limited flexibility
• Difficulty in managing complex projects
• Potential for misaligned expectations
• Greater project predictability

Time and Materials (T&M)

The Time and Materials (T&M) contract provides cost control by specifying the hours allocated for each task and the hourly rate to be paid. This type of contract offers complete transparency, allowing clients to monitor project expenses in real time. 

T&M contracts allow clients to start their projects quickly, as there are no upfront costs associated with this type of contract.

Pros:

• Greater flexibility and responsiveness
• Quicker start of work
• No long-term commitments required 
• No payments for unused hours/days

Cons:

• Possibility of overspending or overbudgeting
• Lack of motivation for efficiency
• Difficulty in managing the project

Benefits of a software development outsourcing contract template

When you hire a team to develop your software, an outsourced software development agreement is a must-have tool. Using a contract template for software development outsourcing offers several benefits. Here are some: 

• Ensuring clarity and transparency: A contract template ensures clarity and transparency by defining the scope of work, project timelines, deliverables, payment terms, and other key details of the project.

• Saving time and resources: A contract template can save time by providing a pre-written framework that can be customized to suit the project’s specific needs. It is also more cost-effective than hiring a lawyer to draft a contract from scratch.

• Reducing the risk of misunderstandings: Using a contract template guarantees that the wording and words used throughout numerous projects are consistent, lowering the possibility of misunderstandings or conflicts.

9 software development outsourcing contract templates

Software development outsourcing contract template by PandaDoc 

The software development outsourcing contract template from PandaDoc includes the following key sections:

• Developer’s duties
• Delivery
• Compensation
• Intellectual property rights in the software
• Changes in specifications
• Confidentiality
• Developer’s warranties
• Indemnification
• No modification unless in writing 
• Applicable law

Link download: PandaDoc

Software development outsourcing contract template by ApproveMe

This straightforward software development contract is designed to support more elaborate and complex papers that specify software development timelines and specifications.

Link download: ApproveMe

Software development outsourcing contract template by Priori

This software development outsourcing contract template by Priori outlines the conditions under which a developer will sell and transfer personalized software to a client. 

The template includes:

• Engagement of developer
• Client responsibilities
• Acceptance of software
• Compensation and payment
• Term and termination
• Confidentiality
• Intellectual property rights
• Warranties and disclaimers
• Limitation of liability
• Non-solicitation
• General conditions

Link download: Priori

Software development outsourcing contract template by Proposable

The contract from Proposable provides a comprehensive framework for outsourcing software development projects. With the right legal language and built-in eSignature, this template will protect you legally.

Link download: Proposable

Software development outsourcing contract template by Template.net

This contract template from Template.net outlines the most important parts of a software development contract. By using this template, you will be able to organize terms and conditions effectively. 

Link download: Template.net

Software development outsourcing contract template by HelloBonsai

This software development contract template by HelloBonsai is legally vetted and integrates eSignature, making it widely used and trusted. 

The contract template includes:

• Work and payment
• Ownership and license
• Competitive engagements
• Non-solicitation
• Representations
• Term and Termination
• Independent contractor
• Confidential information
• Limitation and liability
• Indemnity
• General

Link download: HelloBonsai

Software development outsourcing contract template by Nitro

Nitro’s software development template is specifically tailored to meet the needs of your business. This template allows you to customize the contract to suit the parties’ agreement. 

Link download: Nitro

Software development outsourcing contract template by OnlyOffice

To get your software development contract ready in a few moments, just fill out this template from OnlyOffice. The contract template is well-arranged, with clear responsibilities and warranties for your business project.

Link download: OnlyOffice

Software development outsourcing contract template by CocoSign

This template from CocoSign is a thorough contract that can help you make suggestions on how to tackle software issues that arise. You will save time and effort by using this template for your project. 

This template is crafted with the following major parts:

• Scope of services
• Term and Termination
• Price and Payment terms
• Ownership of Intellectual Property
• Confidential information
• Warranty and Disclaimer
• Limitation of Liability
• Relation of Parties
• Arbitration and Mediation
• Miscellaneous

Link download: Cocosign

Key elements of a software development outsourcing contract template

It is critical to pay attention to the terminology used in the outsourcing software development contract before beginning an outsourcing software development partnership. 

While partnerships can be successful and require much cooperation and effort, high stakes and deadlines must be considered. There is a risk of expensive litigation or a ruined relationship if a contract does not properly describe essential items. 

To prevent such issues, it is essential to carefully review the following contract elements to ensure they are included.

Project scope

The most fundamental element of a contract is project scope which involves identifying specific goals, deliverables, tasks, costs, and deadlines. The project scope establishes project limits, distributes tasks to outsourced team members, and establishes procedures for verifying and handing over finished work to the client.

Comprehending the significance of a well-thought-out and precise project scope is essential. If the project scope is vast or liable to vary over time, it can be included as an appendix to the contract. This technique eliminates the need for the parties to rewrite the agreement each time the scope of services is modified.

Workflow

Specific structures and practices must be established from the outset to achieve effective collaboration between a software company and a client. It is necessary to describe the critical features of the ongoing business relationship, such as the frequency of meetings, in the software development agreement.

Intellectual property

This part of the software development contract specifies who owns the software’s intellectual property rights, such as the source code, design, patents, and trademarks. 

Transferring the copyright is vital to subsequent product development and collaboration with others, especially if the contract is ended. To avoid future legal disputes, it is important to prove that you are the legal owner of the product.

Time and cost

This element of the software development outsourcing contract is dependent on the billing model chosen previously, either Fixed Price, Time & Materials, or Dedicated Development Team. In the event of fixed pricing, the time and cost are fixed at the start of the project. Time and materials are subject to change based on the developing scope and client requirements. 

Nonetheless, at this stage, the development company can provide a preliminary estimate of cost and completion time. It is also crucial to establish parameters for accepting additional charges and varying response times, such as weekly meetings to agree on each change and email confirmation by both sides.

Payment terms

The payment section of the software development contract should include specific payment terms, such as a payment schedule. If the project is time and material-based, the contract must establish developer rates, payments for technology, and collaboration with third-party vendors.

The ideal scenario is to make payments after the delivery of each milestone or upon the completion of the entire project. Some companies may choose to pay a portion before delivery to cover initial expenses. Meanwhile, others prefer to pay only when satisfied with the result and have confirmed that it meets all the requirements.

Transfer of asset

In an outsourcing model, it may be necessary to transfer various IT assets, including telecommunications equipment, computer hardware, equipment leases, and software licensing. 

However, they provide clients with specialists and basic workstation equipment for smaller or less formalized ordering parties. You must write an asset transfer clause to legally bind these assets’ transfer and return procedure to the outsourced business.

Confidentiality

Because the vendor will access your company’s sensitive data, privacy and confidentiality are essential components of the software development contract. It is imperative that the agreement specify how confidential information will be protected long after the partnership has finished. 

This section of the contract should also include provisions for protecting your customers’ personal information, revenue information, and trade secrets to prevent illegal access or misuse of information.

NDA

A nondisclosure agreement (NDA) in a software development contract assures that secret information is not disclosed to the contractor for use in another project. An NDA usually includes multiple terms, one of which states that releasing sensitive material to the other party does not entail issuing a license or transferring a copyright and should not be interpreted as such.

Dispute resolution

If your outsourcing partner breaches the contract, it may result in legal processes that are both time-consuming and costly for your company. However, you can take measures to protect your company from such situations.

One solution is to add an amicable settlement provision in the contract that allows both companies to negotiate and achieve a mutual agreement on the issue. This provision reduces the likelihood of dispute and gives you a clear and simple action plan in the event of a conflict.

Acceptance conditions

Successfully completing a project is a critical aspect of outsourcing cooperation, and it requires a clear definition of the acceptance conditions. Such conditions ensure that you will receive a satisfactory result of cooperation, which, in turn, protects the software company from endless changes that impede work.

Termination conditions

The termination conditions in the software development contract serve as a protection mechanism for you in case of dissatisfaction. That unhappy scenario can occur when the vendor fails to meet the agreed-upon deadlines or delivers a subpar product that does not meet your requirements. 

Tips for customizing your software development contract template

Here are a few tips to help you customize your software development contract template: 

• Consulting with legal experts: Get legal advice from a lawyer who is experienced with software development contracts to ensure that the contract is legally valid and protects your interests.
• Tailoring the template to specific project requirements and goals: You may want to identify your particular needs and requirements for the project before customizing the contract template. This will help you figure out which clauses and conditions to include or modify in the template.
• Review and update regularly: Evaluate and update the contract regularly to ensure it remains relevant and represents any changes or updates in your project or business requirements.

Outsourcing software development to Mageplaza

Before choosing a software development outsourcing contract template, the first challenge is to find a reliable partner to entrust your project. Let Mageplaza take that hurdle off your shoulders. 

By working with us, you will be able to get:

• Dedicated experiences and expertise: With nearly 10 years of experience, Mageplaza developers have extensive knowledge of developing customizing E-commerce solutions.
• Affordable pricing: You don’t have to worry about the budget because we have various E-commerce development packages that suit your business needs.
• Extensive support: Mageplaza can provide you with the most efficient technical support, which is responsive, secure, and personalized.

Don’t hesitate to contact us today to get more information and get ready to propel your business to a whole new level. 

Conclusion

A well-crafted software development outsourcing contract is critical to a successful outsourcing project. Remember to incorporate key elements such as intellectual property, payment terms, termination conditions, and dispute resolution. 

A well-written contract will reduce the chance of disputes, enable clear communication, and lay the groundwork for a fulfilling relationship with your outsourcing partner. With a software development outsourcing contract template in place, you can concentrate on achieving your project objectives and establishing a solid collaboration.