Software Development Agreement (i.e., SDA) often shares the fate of Hollywood celebrity marriages. In the beginning, partners hold high expectations of each other and believe in the bright future ahead. However, after a while, the end seems inevitable, and the breakup can be turbulent and costly.
This is usually the moment when the contracting parties realize they haven’t been able to see eye to eye since the very beginning, which indicates inadequate regulation of all the matters. With the SDA, every provision is crucial, and if not paid sufficient attention, a tiny detail may sow the seed of discord between the parties in the future.
Software Development Agreements are specific due to their complexity. A Master Software Development Agreement is always accompanied by Statements of Work, Instructions, Schedules, Licenses, and Service Level Agreements (“SLA”), which make these agreements complex legal acts, compiled of several different documents, often not in a coherent whole. When taking into account the fact that it is quite difficult to anticipate the technical requirements and specification for software development in detail, and that the initial cost estimate of the entire project is often incorrect, the hard fact that at least 50% of projects fail before the estimated completion date does not come as a surprise.
The biggest hurdle service providers endure are with late or missed payments, when the client attempts to extend the originally established scope of the project (known as the “scope creep”) with additional instructions, or when the service provider believes that the previously agreed-upon criteria for project deliverables are met, while the client believes otherwise. On the client side, the problem arises when software delivery or project deliverable are delayed or if the quality of the delivered software does not meet the technical and/or functional specifications.
Complications occur even more frequently when the service provider does not execute the project alone but uses subcontractors (known as the “one throat to choke” model). The alternative model is to use a multi-vendor IT agreement, which, on the other hand, holds an exponential threat for eventual disputes, due to the existence of multiple service providers in charge of particular parts of the project and the complexity of legal matters.
Bearing in mind that these agreements usually last for several years, what should also be considered are the challenges entailed by the market fluctuations (e.g. changes in labor cost/services/equipment, etc.). On top of that, the changes in the client’s business strategy, which does not have to be related to the execution of the SDA itself (for example, a change from the outsourcing to insourcing business model).
With all the abovesaid, it poses quite a challenge to plan the exit strategy from a Software Development Agreement with as little harm as possible to the contracting parties.