How to Make a Good Software Development Contract

Written by Mario Agüero|Posted on February 27, 2023

header image

Outsourcing software development projects is an attractive solution for many organizations, as custom software development companies can provide a team of experienced developers, QA engineers, UI designers, and other specialists required to build and launch a competitive product on the market in a timely fashion. However, as with any business partnership, a solid contract is required to ensure that the working relationship proceeds smoothly and all stakeholders’ rights are protected.

Let’s assume that you have chosen a software development company with staff and experience that covers your needs, and it’s time to settle on an agreement before starting work.

Ideally, any agreement with a software development service should be a win-win situation. From your side, the potential pitfalls of a development project you might want to address would be:

  • Delays
  • Privacy and security breaches
  • Inflation of costs
  • Flexibility to make changes

This guide will help you with guidelines on how to set up the best type of software development contract, and what it should cover.

Which Type of Software Development Contract to Choose?

There is no one-size-fits-all arrangement when it comes to software development. The particular conditions will depend on the requirements of the project and the capability of the outsourcing company. Consider the following models that are typical in the industry and how they might work for what you have in mind.

T&M (Time and Material)

In this type of contract, the client pays the development company for time spent working and materials used. This model is popular for smaller, part-time arrangements with an open-ended scope where you cannot accurately predict how much time it might take. Mistakes made by rushing or cutting corners to meet a tight deadline or budget are avoided, and this model allows for greater flexibility during development. However, this open nature can often mean that the initial budget is exceeded.


The cost is agreed upon in advance and does not change, no matter how long the project takes. This contract type works well for small to medium size projects, but only if the requirements and technical specifications are clearly defined in advance. Be sure to discuss these in detail with the software development company to ensure that everything is understood before fixing the price.

Dedicated Team

You can also hire an entire team to handle end-to-end software product development. The size of the team, and also the cost, will be negotiated with the company based on the project requirements. Ideally, you want the ability to scale the team up or down as necessary. This model is ideal for complex, long-term projects such as custom software development for enterprises.

What to include in a Software Development Contract

Regardless of the contract type chosen, the agreement should cover the following to the satisfaction of both parties.

Timeline and Budget

Time and money are concerns for all stakeholders, so the contract should outline clear expectations for both. Also important is to include stipulations as to the responsibilities of all participants in case the project goes over deadline or budget at any point.

Scope of Work

This includes project specifications, the roles of team members, and associated responsibilities, as well as the tech stacks/programming frameworks used. This section should be as detailed as possible to avoid misunderstanding. Both parties should be able to propose changes to the scope of work during the project, and the initial contract should outline the terms and procedures for doing so.

Confidentiality and NDA

Compliance with internal security policies and standards should be outlined and agreed to in the contract. Often, a separate non-disclosure agreement (NDA) will also forbid the disclosure of sensitive information to third parties. The NDA should explicitly apply to not just the duration of the project, but also after completion.


The warranty guarantees that the software product will function as intended until a specific date, possibly even indefinitely. Many software development companies offer long-term maintenance support, fixing of bugs or glitches, etc. These services should be specified in the contract.

IP Rights

Include a section in the contract that guarantees your ownership of the software product being worked on, including the source code, as your intellectual property. This prevents the vendor from modifying or selling the software themselves or offering it to your competitors.


Quality assurance (QA) is an integral part of all software development work and should be conducted throughout the project life-cycle to catch bugs in the early stages. The testing process and associated reporting should be detailed in the contract.

Final Thoughts

The contractual agreement sets the framework for a long-term working relationship, so it is worth spending some time on and making sure the collaboration starts out on the right foot. Following the above guidelines will help you get started, and you may also find it beneficial to consult with a lawyer and have a technical expert review your contract.

Even a watertight contract will not guarantee that a project goes smoothly, so it is also recommended to partner with an experienced software development firm with an established reputation. AccelOne’s expert nearshore development team has a proven track record of delivering quality software solutions on time and within budget. To find out how we can help your company meet its business needs with great software, contact us online or call 800.863.6814.

Mario Agüero

Mario Agüero

General Manager


Buenos Aires, Argentina

View profile