App development contracts are critical for properly planning and building mobile applications or software products. As a result, it’s crucial for all parties involved to understand how they work to suit everyone properly and help establish wholesome, long-lasting business relationships.
“Yeah, there’s an app I use for that.” “Oh yeah, I downloaded an app that does that.” You know we live in the age of technology when every conversation we have has at least one reference to an app or a website. Actually, they are becoming commonplace in our day-to-day conversations and are taking more and more space in our lists of priorities. What’s more, almost 50% of smartphone owners today open an app more than eleven times a day, with millennials leading the way by opening their applications nearly fifty times daily! To say that we can’t live without those little pieces of technology that live in our phones and computers is an understatement. And just like the average person needs their apps like they need air, modern businesses tether even their most basic operations to mobile and software applications. But these IT-based products, however ordinary and widespread, don’t grow on trees. We need app developers to bring our beloved mini IT-based lifelines to fruition. Even if you have an awesome app idea, unless you’re already well-versed in app development, you’ll need to hire a developer and jot out a very necessary but sometimes dreaded app development contract.
Being an app development company and building apps for a living is truly incredible! However, not everyone that hires an app development company understands how the development process works or what goes into building IT-based products. Still, both the development company and the client must meet in the middle and assemble a contract that lays out the conditions for working together. More importantly, this agreement must be transparent and honest so that both sides are happy, pleased, and protected.
So, today we’re going to talk about app development contracts so that you can avoid getting scammed and know precisely what to expect and demand from a legal perspective when you hire a development company to build your app. Let’s begin.
What is an app development contract?
If you read our article on how to choose the right app development partner and followed our recommendations, then you’ve probably already found the app development company that meets your needs and are about to set sail on your new project. However, before you embark on this unique quest, and even before your app’s first line of code is written, there is a crucial step to take–writing and signing the app development contract.
Simply put, an app development contract is a legal document outlining the terms under which an app developer provides development services to a particular client. In addition, it delineates and specifies all the details of how a mobile app idea will come to fruition while also serving as a consensus on the product’s requirements and specifications. In other words, this vital document defines everything related to your project, from when and how it is to be delivered, to who will work on it, its features and tech stack, how you will be charged, and even the actions to be taken in case of a dispute. Agreeing on these items and many more is critical for establishing a healthy client-developer relationship from the start and avoiding misunderstandings, regardless of the size of your project.
As you can see, the essence of app development contracts is very similar to any other type of agreement made when hiring different kinds of services. However, when it comes to app development, there are various specific items and points that you and your development partner must agree upon. It’s important to note that the relevance of creating a wholesome app development contract application goes way beyond setting a solid stage to build an application. It is also a crucial document to help all parties and stakeholders with the following:
- It helps establish their obligations and roles.
- It assists in defining the scope of work (milestones, deliverables, product roadmap, dates, etc.)
- It defines who will own the application, its source code, logos, texts, and any other aspect of the product that may be subject to copyright laws.
- It helps establish who will be held responsible or liable in case of dispute, breach of contract, or any other disagreements.
- It defines a pricing model, payment scheme, and payment terms and times that suit all parties.
- It helps define the intended tech stack, frameworks, resources, features, programming languages, and everything regarding the building of the app itself.
- It aids in establishing a timeline and project delivery date.
- It assists parties in defining the staff members who will work on the app and their roles.
- It establishes any compliance requirements and security considerations regarding data safety and protection.
- It details the terms of any follow-up support, maintenance timelines, warranty period, or testing requirements that will take place after the application’s deployment.
- It lines out confidentiality terms.
- It helps establish the terms upon which any one of the sides would be allowed to terminate the contract. In such a case, the app development contract must include any indemnification, fees, or penalties that apply as the result of any violations that lead to the contract’s termination.
These are just some of the main aspects to be included and defined in any standard app development contract. There may be additional clauses or points to be included in your agreement that depend on your particular case. Also, some developers prefer to have a standard contract template with all the necessary terms and conditions that apply to most, if not all, of their clients. They can update some of the terms and clauses when required without having to create an entirely new contract each time they start a new project. At any rate, creating an infallible and transparent app development contract is non-negotiable when entering a business relationship with a development company. It is the only way to protect both sides, keep everyone happy, and ensure that said relationships always result in wholesome and durable mobile and software products.
Types of app development payment contracts
Before diving into the specifics of app development contracts and the best practices for creating them, it’s essential you understand the common types of payment contracts out there so you can identify what works best for you. In addition, you must understand the two most common pricing schemes because from these payment models stem most of the other points of your app development contract.
- Fixed-rate contract
A fixed-rate contract, also known as a flat rate, is when the scope of the project, its requirements, and the time it will require for completion are fixed and agreed upon upfront. These set-in-stone estimates determine a fixed price that either party cannot modify once the project starts, regardless of how much time or effort it takes to complete. This way, you get a clear-cut idea of how much money you will spend, allowing you to clearly plan your budget with an agreed-upon payment scheme that suits both parties.
- Hourly-rate contract
An hourly-rate contract, also known as time and materials (T&M), determines a rate for each hour you and your team spend working on a particular project. In other words, you charge your client for the effective time you spend developing their product. Added to that charge, you also need to include any additional expenses such as fees for using frameworks and tools, buying domains or SSL certificates, and app store fees, among other costs inherent to the development process. The main idea behind the hourly-rate pricing model is to give the client a realistic product roadmap and an initial cost estimate. It also allows the development team to have certain freedom during the development process and helps you determine the product’s final cost depending on the time your team spends working on it.
Selecting a suitable pricing model is crucial for both the development company and the client because it establishes a balance between what works for both parties and lays the groundwork for a trusting, long-lasting relationship. Once you’ve settled upon a pricing model, you can start lining out the other aspects of your app development contract.
Main elements of an app development contract
As we stated above, no two app development contracts are alike. Each development company has its own template, which they adjust depending on a particular client’s needs. However, any solid app development contract must include some elements that are non-negotiable and essential to protecting all parties, so the client-developer relationship is always a wholesome one.
Here are the main elements your app development contract should include.
The crux of the client-developer relationship is the application; hence, defining the app’s concept and what it can do is a crucial first step for building a wholesome app development contract. As such, the document must specify, in great detail, the following:
- Expected capabilities of the app.
- Required features.
- Programming languages.
- Source code specifications.
- Human resources.
- Working hours and timeline.
All these points must be agreed upon beforehand and specified, avoiding vague wording so that none of the parties get confused.
Time, cost, and payment
This section is one of the most important ones because it defines not only how much it will cost to complete your project but also describes how you’ll cover that cost and details the terms and conditions of the payment model you selected. It defines the hourly rates or total cost–depending on your choice of contract, it states the different development phases, deadlines, and milestones, if any. It’s important to note, however, that this point of your app development contract should also spell out exactly what happens in case of any delay, cost changes, payment issues, or any other modification to the initial terms to avoid conflict or misunderstandings.
User acceptance testing
It is critical to ensure your app works as it should and meets user expectations. For this reason, testing it on real users is a crucial, non-negotiable part of the development process of your product, and you must include its specifications in your app development contract. Depending on the type of agreement and your company’s capabilities, either you or your development partner can conduct the app’s acceptance testing after each development phase. However, make sure this clause clearly states who is responsible for it, how long it should take, the terms for conducting it, informing its results, and making the necessary adjustments and modifications if needed.
Imagine creating the next big thing in social media apps without knowing who owns it because you didn’t specify it in your app development contract. That can be problematic. So, to avoid these types of gray areas, your app development contract must include an Intellectual property clause. Intellectual property (IP) relates to all work that is original or created in the process of developing, marketing, and deploying your app. Depending on your project’s specifications, you can own either the entire app or your app developer can use their own source code and designs, thus owning part or all of it. So, to avoid getting scammed into signing away your million-dollar app idea (this applies to both developer and client), it is imperative you make sure to include a clause in your app development contract that clearly specifies who has ownership over what.
Suppose you’ve previously outsourced or contracted other services with a third-party provider. In that case, you already know that a confidentiality clause is a pretty standard way of shielding yourself, your project, and your provider. However, it’s important to note that confidentiality agreements and clauses are particularly relevant in the information technology sector because it’s a highly innovative industry that constantly delivers disruptive products. As a result, you should make sure you either add a confidentiality clause or design a separate non-disclosure agreement (NDA). Whichever you choose, make sure to create a document that specifies which parts of your project are considered confidential, the responsibility of all parties to keep that information secret, permitted disclosures, third-party confidentiality considerations, duration of the non-disclosure terms, and the penalties that apply in case of breach of the specified terms.
Warranty, liability, and termination specifications
A good app development contract has to clarify precisely what happens if any of the parties either breach any part of the contract or choose to terminate the agreement for any reason. In addition, you must make sure the app development contract specifies a straightforward process for dispute resolution, stating if each party has to go to mediation or how both parties will handle disputes to stop them from escalating. Also, if you’re outsourcing developers in another country, either nearshore or offshore, you must define the jurisdictional competence and governing law that will apply in case of a dispute.
Lastly, you must also put warranty periods in writing to clarify the time period until which your developer will provide support without extra cost to you (usually 90 days).
Remember, these are just some of the most common elements app development contracts include. You can encounter companies with different requirements, some more complex, some less. The vital thing to keep in mind is always to do your research and inform yourself before signing any document. If you’re inexperienced, you can seek legal help or turn to articles such as this one, where you can find relevant information to hopefully prevent fraudulent parties from taking advantage of you.
App development contract best practices
Outsourcing mobile app development services are becoming an increasingly common practice across companies of all sectors. In fact, around 60% of businesses worldwide outsource app development to not only avoid pesky hiring problems but also to avoid extra costs and enjoy access to the skills and expertise of a development team that can give you a seamless development process. However, to enjoy all of these benefits and many more, you and your app development partner must build a wholesome, transparent, and durable app development contract that benefits both parties and helps deliver a robust product.
But how do you build a solid app development contract that transparently enforces all the elements mentioned above while also helping you avoid costly mistakes and enjoy the app of your dreams? Let’s find out.
- Do your research
A good starting point before diving into signing lengthy contracts or hiring the first development company you find is to conduct thorough research of both the development environment in your area and the contract specifications that suit your project. Depending on where you are located, hiring an offshore or nearshore development company may be a good idea. By doing so, you’re not only cutting costs but saving yourself the hassles of dealing with interviewing and hiring staff. Additionally, you should research which pricing model suits you better, how long projects like yours take to complete, how app development contracts work, and the average costs of getting it done. Also, ask potential app development partners for info regarding their portfolio and clients. Finally, get references to gauge the company’s skills and track record to see if they fit your vision.
- Always sign an NDA
When we say never, we really do mean NEVER start working with an app development company without signing a non-disclosure agreement (NDA) beforehand. Why? Because as we explained earlier, it is the only way to protect both your and the development company’s intellectual property. Any original idea, design, or technology is priceless and has the potential to become an instant success hence the importance of protecting it. Moreover, an NDA stops the development company from repurposing what they did for your project and using it on others, which is essential, especially if your idea is original. Also, if you are outsourcing, get the necessary legal assistance to ensure the NDA is binding in your and the developer’s countries.
- Choose a payment model before starting
In app development, getting an estimate or a final price for your project is not enough. Yes, it is essential to discuss it beforehand, but there’s much more to app development pricing than meets the eye. The different payment models we discussed earlier have different implications and carry additional terms. A fixed-rate, for instance, requires both parties to agree on a set price that no one can modify once the project starts, regardless of how much time or effort it takes to complete. You can agree on payment intervals, installments, or even pay upfront. Whichever your decision, make sure to put it in writing and agree on all payment terms with your developer before development starts. This way, you’ll avoid disagreements, unpleasant surprises, and unforeseen modifications that can cost you time and money.
- Demand acceptance testing
Imagine waiting for months for your product to be ready and receiving a piece of technology that doesn’t meet either your or your users’ expectations. In that case, you would’ve wasted valuable time and resources, and going back is not only expensive but puts a hamper on your business goals. For this reason, we suggest you always include an acceptance testing clause in your app development contract. This type of testing allows both parties to keep an eye on whether the product meets functionality and performance demands while meeting your expectations as a client. Keep in mind that testing must occur at the end of every development cycle so that your development partner can make any modification in a timely manner. Also, make sure you define beforehand who will be in charge of conducting the acceptance testing, how the responsible party will inform the results, and how modifications will be made.
- Set clear terms for termination
Needless to say, we all want our business ventures to thrive. But, unfortunately, life doesn’t always work that way, and you need to plan for failure so that it doesn’t take you by surprise. In that sense, your app development contract must clearly specify the circumstances under which either party can terminate the agreement, how the termination will take place, what penalties must be paid, and what happens with any payments made or any work already done. Hopefully, neither party will have to terminate the contract, but including a termination clause and specifying its terms can give you a safeguard in case of dispute or dishonest behavior.
There are other app development contract best practices that can help you build a wholesome relationship with your app development partner while protecting your company, interests, resources, and product. However, keep in mind that these are only some guidelines based on our business experience as an app development company. As such, this article isn’t meant to be considered professional legal advice.
The most crucial thing to consider is that you must be willing to remain vigilant and do thorough research before entering a business relationship with anyone. Read every document you’re signing, especially the fine print, and always get legal help if there are terms or clauses you don’t fully understand. Better safe than sorry!
As we said above, in an ideal world, business relationships fueled by trust always work. Unfortunately, however, that’s not always the case. While most of us strive to keep our industry honest and transparent, there are unethical parties out there looking to take advantage of innocent, inexperienced people. For this reason, learning how to build a well-drafted app development contract is your best weapon against scammers. It is also a way of saving costs and ensuring you get a durable product that meets both your and your users’ expectations. At any rate, wholesome app development contracts are the ones that have ample input from both parties, so that it isn’t a simple legal document but an agreement designed to build innovative mobile products and long-lasting business relationships.
Please don’t hesitate to contact us if you need further information on app development contracts or if you need any type of development service. We’re here to help bring your app idea to life!