What is a software development agreement? Explanation and use

What is a software development agreement? It is the contract by which you commission a developer to build software for you based on your specifications. Unlike off-the-shelf software or a license, this involves custom work: new code is created specifically for your purpose. The agreement specifies what is being built, in which phases, when it is delivered and approved, what it costs, and, crucially, who becomes the owner of the code after delivery.

The short answer

• A software development agreement is the contract to build custom software.
• Legally, it is usually a contract for work (Article 7:750 of the Dutch Civil Code): a concrete result for a price.
• The core is the specification: what exactly the software needs to be able to do.
• Milestones, acceptance tests, and additional work govern the construction process and payment.
• Without a separate transfer, the copyright remains with the developer; transfer requires a deed (Article 2 of the Copyright Act).

What is a software development agreement legally?

In the case of custom work, the developer commits to building a working result for an agreed price. This usually constitutes a contract for work within the meaning of Article 7:750 of the Dutch Civil Code. This differs from an assignment where only an effort is promised: in a contract for work, something must actually be delivered that meets the agreements. This is important for you as the client, because it entitles you to a sound result and not just to a number of hours worked.

In practice, a hybrid approach is sometimes taken. If you work in short iterations without a fixed end result, it resembles a contract with a best-efforts obligation more closely. If you work towards a defined product, the contracting character predominates. However you structure it, the agreement must clearly state what constitutes delivery and when payment is due.

The specification as the heart of the contract

Custom work stands or falls on exactly what needs to be built. Therefore, the functional and technical specifications are included as an appendix to the agreement. They describe the functions, user roles, connections with other systems, and requirements regarding performance and security. The more precise the specification, the smaller the chance of subsequent disputes regarding whether something fell within the scope of the assignment.

Milestones, acceptance and additional work

• Milestones. The project is broken down into phases with partial delivery and partial payment. This way, you maintain control over progress and budget.
• Acceptance test. With every delivery, you test whether the result meets the specification. It is considered accepted only after approval.
• Additional work. Anything falling outside the specification is additional work. Document how additional work is requested, priced, and approved.
• Maintenance. What happens to bugs and updates after delivery? Arrange for warranty and, if desired, a maintenance contract.

A practical example: a wholesaler commissioned the construction of an inventory system that integrated with the existing webshop. The agreement included three milestones: database setup, integration with the webshop, and the reporting dashboard. Each milestone was followed by a two-week acceptance test and payment of one-third of the price. When the wholesaler requested an additional report halfway through the process, this was quoted separately as additional work. This kept the budget manageable and ensured that it was always clear what had been completed.

Who becomes the owner of the code

This is the point where custom projects most often go wrong. Copyright on software originates with the creator. Even if you pay for the development, without a separate agreement, the copyright remains with the developer, and you, as the rightful user, only acquire a right of use (Article 45j of the Copyright Act). If you truly want to become the owner of the code, for example to have it further developed by another party later, the copyright must be transferred. This transfer requires a deed, a signed document (Article 2 of the Copyright Act).

Arrange this in advance. Determine whether you want a full transfer, a broad exclusive license, or permission for the developer to reuse certain generic components. Also request the source code and documentation via an escrow or transfer agreement, so that you do not remain dependent on a single supplier.

Privacy in custom work

If the developer processes personal data from your systems during building or testing, for example when importing existing data, they act as a processor. Article 28 of the GDPR then mandates a data processing agreement with agreements regarding security, test data, retention periods, and the deletion of data after delivery. Privacy by design must also be incorporated into the built software itself if personal data passes through it.

Honest recommendation

If it concerns a small development project with a developer you trust, with a limited budget and without the code being crucial to your business, a short, clear order confirmation will suffice. A lawyer is not necessary in that case. However, as soon as the software becomes important to your business operations, as soon as the costs increase, or as soon as you want to be able to switch suppliers later, the transfer of copyright is the most important point to arrange properly. By default, developers only grant a right of use and retain the code themselves. In that case, have the agreement drafted or reviewed, paying particular attention to the specification, acceptance, and ownership of the code.

Want to know more? View the software development agreement, read exactly what is included in drafting a software development agreement and what it costs to have one drawn up.

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