Week # 04

Software Contracts

Part - II

18
 Section – II of contract

Termination of the Contract

•Client’s needs or circumstances may change
•Software may no longer be appropriate
•Issues to consider
• Indemnity for termination
• Ownership of software developed so far

19
 Section – II of contract

Limitation of Liability

Unfair Contracts Terms Act (by supplier)

• Provides that a software house using a standard
from contract cannot, unless it is reasonable to do
so,
• Exclude liability for its own breaches of contract,
or
• Claim to be entitled
• To reduce a contractual performance considerably
different from that which was practically expected of it.
• Deliver no performance at all (in respect of the whole
or part of its contractual obligations)

20
 Section – II of contract

Other contractual Issues

• Quality control
• Progress meetings
• Managing the project
• Acceptance procedure
• Determine if Contract has been delivered
• Warranty and maintenance
• Bug fixing (free of charge – e.g. 90 days)
• Extended warranty (enhancements)

21
 Section – II of contract

Other contractual Issues (cont…)

•Arbitration
• Arbitration clauses are common
• Cheaper and faster than going to court
• Usually governed by Arbitration Act 1996

•Inflation
• In case of long term maintenance
• Automatic review of agreed price
• Frequently linked to Business Costs Index

22
 Section – II of contract

Other contractual Issues (cont…)

•Applicable Law
Choice of the law which applies to the Contract
(and its interpretation)
• If the parties have registered offices in different
countries
• If the performance of the Contract involves more
than one jurisdiction

•Language of the Contract

• If contract is to be translated, which is the
binding version 23
 Fixed price

Types of Time and materials

contract (cost plus)

Combined
 Fixed price contracts

Structure
• short agreement
• standard terms and conditions
• annexes or appendices.

25
 Standard terms and conditions (1)

•responsibilities - supplier
•responsibilities - client
•standards/quality management
•progress meetings
•acceptance
•ownership of rights.
26
 Standard terms and conditions (2)

• Delays, changes, penalties

• Default and termination
• Limitation of liability (indemnities)
• Confidentiality
• Post-completion support
• Warranties
• Disputes
• Legal jurisdiction. 27
 Annexes or appendices

• A Customer and quotation details

–1. Premises
–2. The supply - deliverables
–3. Contract price
• B Project plan
• C Payment plan
• D Items supplied by client
–1. Hardware (Access)
–2. Software and manuals
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Fixed Price Contracts
Advantages Disadvantages
Provider Full control of the development Assumption of development risk
process
Potential higher business profit Potential friction with customer
due to requirement changes and
interpretation of requirements.
Commitment for a complete
project

Customer Fixed budget for the project Increased development cost

Minimum involvement in Potential friction due to
development requirement interpretations
Most of the development risk is
transferred to the developer
 Cost-Plus Contracts

• Is a contractual relationship in which the developer is paid

for the cost of the services provided and in addition is
allowed an agreed profit margin.

• software development responsibility is like fixed price;

• Total only known after the project is completed

• Appropriate for small, undefined projects, for which it is

difficult to identify the project’s requirement in advance.

• Used when the customer wants to retain control of the

development process.
 Cost-Plus Contracts

• The cost-plus should cover the following issues:

• List of persons to be assigned to the project
• Work definition
• The percent of time each person is assigned to the
project
• Administrative overhead
• Authorized expenses to be reimbursed
• Billing procedure
• Payment procedure
• Termination procedure
 Cost-Plus Contracts
Advantages
Provider No financial or business risk
Acquisition of knowledge and
experience at the client’s
expense
Customer Retention of control over
development
No commitment needed for full
project contract
Reduced risk ( no termination
cost)
Disadvantages
Low business profit
Contract continuity is not
assured,
Staff displeasure
Increased development
cost
Assumption of development
risk
Increased involvement
Lack of well-defined goals
 Combined Contracts:

• Joint Venture

• Long-term commitments

• Outsourcing