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How to Read the Software Consulting Contract

Jun 11, 2008
All software consultants should provide a contract document to be executed before performance of any services. While these contracts can be long, it is crucial that they are read beforehand, as there are some very important provisions which need to be understood by both parties.

Key Provisions
While it is important to read the entire contract with each transaction, there are certain key sections in a typical software consulting contract upon which you will want to focus special attention.

Performance of Services
Some basic guidelines for the performance of the Consulting Services should also be established. Where will the consulting services be performed? Who can request consulting services? Who is responsible for travel and other ancillary expenses?

Ownership of Intellectual Property and/or License
It is important that you, as the client, know that by default, all Copyright is property of the Author. This means that absent any language to the contrary, all source code and documentation developed by the Software Consulting firm belongs to them. For this reason, it is critical that IP Ownership be established by any contract you execute with your vendor.

Confidentiality
Language regarding the handling of information which is confidential to your business is also vital to include in your contract. This language should be written so as to incorporate your data as well as your processes.

Limitation of Liability
Most software consulting vendors will not warrantee any and all damages to you and/or your customers who are using the custom solution that the vendor is developing for you. It's important that you understand the limits of such liabilities and that you are comfortable with them before engaging the vendor.

It is also common practice to limit the contractual liability to "the value of the delivered services or $X, whichever is greater", so that there is a limit to the financial impact of a failed project.

Billing and Payment Terms
It is a good idea to establish expectations for both billing and payment as well. Some important questions regarding billing and payment terms to consider include: Will purchase orders be issued or required? How often will bills be issued? In what format and where will invoices be sent? How soon must they be paid? What forms of payment are acceptable? Are there any discounts for prompt payment? Are there any penalties for late payments?

These terms should be set forth in the contract so that expectations are established from the beginning of the relationship and there are no surprises.
About the Author
Nate Richards is Founder and CEO of Entrance Software, a Custom Software Development and Consulting Company . With nearly a decade of professional software development experience, he has developed a breadth of knowledge of numerous technologies and the role of custom software in the business world.
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