Software development agreements – getting paid for your work

Having worked hard both to win a software development contract and to complete the development, as an IT developer you will be particularly keen to make sure that you are properly and promptly rewarded for your efforts. Making sure you have a clear fee structure and payment procedure in your software development agreement will go a long way towards achieving that aim.

For developments where there is a defined piece of work you may be happy to agree a fixed fee. In cases where it is not be possible to define the whole project at the outset, perhaps because the client’s requirements cannot be completely specified at that stage or because of the scale of the project, you are more likely to work on a time and materials basis.

Clients may be apprehensive about agreeing a time and materials fee structure, but the fact is that in other than quite small projects your fixed fee is likely to include a margin for contingencies which may or may not arise, whereas costing on a time and materials basis means that only actual costs are charged. In practice you may find that a combination of the two methods suits the circumstances better with a fixed fee for what can be defined at the outset and time and materials being applied to any extras or variations which might be requested along the way.

Whatever fee structure you use, in all but short projects you are likely to want the fee to be paid in instalments rather than waiting until the whole project has been completed. This will improve your cashflow and reduce the exposure of your business in respect of the development project. Payments can either be periodic – usually monthly or weekly – which may be more suited to fees on a time and materials basis. Alternatively they can be linked to stages of achievement in the project which might be more suited to a fixed fee project.

The software development agreement should set out the basis and timing for the payment of instalments. Where the instalments are based on completion of stages of the project, the payment provisions can refer to the specification for the development and the project plan defining the stages of the development. The acceptance testing procedures will then be important for showing whether the criteria for the particular stage have been achieved and the corresponding payment is therefore due.

Bringing all these elements together in your software development agreement at the outset is a worthwhile investment to make your software development project run smoothly and ensure you get paid for your work as it progresses. This is an area where I can help you, so for advice on software development agreements please contact me, Sue Mann.

Sue Mann

Commercial Solicitor, Birmingham