How to Contract Software Development: Key Things to Include

Krunal Shah

Apr 19, 2022

7 min readLast Updated Apr 22, 2022

There were 26.4 million software developers in the world in 2019 while the number is set to grow to 28.7 million by 2024. And a significant portion among them has opted for custom software development. With the growing number of businesses opting for contract software development, it has become more common than ever in the software development sector around the globe. Opting for custom software support by outsourcing has given a whole new edge to the development procedure of various software around the globe.

So, how to contract software development? It’s a common question among businesses. Especially, if you are going for software contract work for the very first time. There are certain procedures to follow and things to look after to ensure you can optimize the outsourcing cost and available resources while ensuring safety. So, in this article we have come up with a complete guide on how to contract software development, key things to include while opting for custom software support or software contract work, and more.

What Is a Custom Software Development Contract?

A custom software development contract is defined as a set of terms, conditions, and rules that are documented when a company wants to get any specific software development services or solutions from a software development service/solution provider or software developer. A custom software development contract is highly important to define all the specific set of requirements a company can have as well as the specific set of development solutions/services to be delivered from the developer side.

It is recommended to opt for a custom software development contract to avoid any future disputes, and ambiguities in the deliverables and most importantly ensure the required software quality and deliverables are maintained. Next, we will know about the different types of software development contracts.

See More: Top 10 Product Development Frameworks for Startups

Types of Software Development Contracts

There are various types of software development contracts based on the business type, product type, software development type, and many more. Let’s have a look at some of the most common types of software development contracts.

Fixed Bid

Fixed bids are one of the most popular types of software development contracts which includes a well-defined scope of the project and the total cost to be paid. As the name suggests, here the work specifications and the associated price remains fully fixed to avoid any further complications.

Fixed bids are great fits for having contracts with third-party vendors or developers for small projects or tasks. It is also a great choice if you are outsourcing from a freelance platform. One can opt for a fixed bid even for moderate software contract work. But the important point to remember is - that the scope of changes is very less as everything is fixed in this contract. As a result, it is not recommended for bigger projects where you need custom software support with higher flexibility. Another disadvantage of fixed bids is, that developers often end up compromising the quality by choosing cheaper tools/solutions to stay within the budget. However, if your project is small or you have a fixed set of requirements, then fixed bids can be your choice.

Fixed Budget

The fixed budget software contract has emerged as a specific type or variety of fixed bids. Here, the software development budget is decided and fixed beforehand while the scope of the project can change as and when required during the development process.

The factor which differentiates fixed budget software contract work from fixed bid is - that the developers can optimize the development and progress by creating as much as possible while maintaining the budget. Fixed budget custom software support and a contract are suitable for small to moderate projects. Also, if you have a tight budget, this can be your go-to option.

Time & Materials

This is most probably the most frequently used software contract work that comes into play during software development services outsourcing. This contract holds an agreement between the software service provider and the company where the company pays an hourly rate. Here you must take care of one important factor - the payment increases with the time spent on the project development. So, you need to reduce the development time and require better control over the development progress. However, the Agile methodology can simplify this and assure the proper utilization of your money by letting you know about the completed features and the estimated time remaining. You can do this time estimation on a regular interval to avoid spending anything extra.

This type of software contract work ensures that the project quality is maintained, and your resources are being invested properly. Moreover, this software contract type is easy to plan and prepare.

Capped Budget

As you can understand from its name, this type of software contract work requires you to set up a fixed upper cap on your budget. But there is a catch - you can offer additional payment as a bonus provided the project gets completed before the scheduled deadline.

While the bonus can encourage the developers to deliver your work faster, it may also cause them to compromise on the project quality to make it faster. However, you must specify the quality standards and other factors to be maintained beforehand.

See More: How to Build a Cloud-Based SaaS Application in 6 Steps?

Guide to a Standard Software Development Contract: Key Pointers

Now that you have a clear knowledge of different types of software contract work, it’s time to get to the main work - how to contract software development. Or, precisely, what are the key pointers to developing a standard software development contract. Well, here’s our guide -:

The Required Set of Services

For custom software support or software contract work, the required services & solutions play a key role. So, it is of utmost priority that the well-defined set of required services is mentioned on the contract.

A detailed specification is needed including project scope, description, delivery time, and others. It is recommended to specify the framework or programming language, the set of top features to be developed in the product, and any other project-related details you think to be important. Also, it is vital to document any changes proposed or required by any of the parties. This will help in going ahead as per the plan and maintaining the specifications as agreed upon over the software contract work.

Project Time & Cost

Time & cost are two important parameters when it comes to opting for software contract work. The contract for the custom software support should include the details related to the time frame to complete the project and the total cost. In case there is any flexibility in terms of time or cost up to an extent, that should be specified along with proper terms & conditions.

This part of the software contract work must document the hourly rate, development stages, progress or milestones to be achieved over a certain period, and others. Give attention to every detail and ensure that the project time and cost are feasible by both parties and match your resources.

Acceptance Testing

Acceptance testing is an integral part of any software development. This method is aimed to test the acceptability of software such as whether it is compliant with the specific business requirements, capable of providing the required solutions, and ready to be delivered or not.

It is important to specify on which side the acceptance testing will be executed - on the vendor side or your side. Acceptance testing is done at the end of each development phase and the details of the project plan are required while documenting this.

Some of the key pointers to include - when the acceptance testing will be done, whether there are any separate testers or not, what is the time duration to execute this testing, how to assess and convey the test results, what parameters to measure, how to decide the results obtained and others. Being specific about this during the software contract work will not only help in executing this efficiently but will also ensure better software quality and faster development.

Intellectual Property Rights

No matter how detailed the above pointers are on your contract for custom software support unless the intellectual property rights section is taken care of, you can be at high risk. Intellectual property rights refer to the fact that you have full ownership of the software that is being developed.

To reflect this on your contract, you need to include all the details clearly as mentioned below -

  • The source code for the software development should be fully owned by you. This will ensure that you have the complete right to change, upgrade, or modify it at any point in time
  • Any related materials in any form that is created during the development process or shared with the developers, should be completely removed or taken from their access once the development & testing process is completed as only the customer has full rights to it. These materials include designs, plans, wireframes, and others
  • At any point of the contract termination, all the codes developed product so far and everything will be immediately owned by you
  • The developers will have no right to any related materials, code, product or part of a product during and after the process

By taking care of the above information and documenting the contract you can assure that the intellectual property rights are maintained.

See More: 5 Common Mistakes to Avoid While Creating Your MVP


For any contract between two parties, confidentiality plays a crucial role. And your custom software support contract is not an exception. In this part, you must specify that all information, resources, product information, features, and others remain completely confidential and the information exchange is only limited between the two parties - developers and clients. The time frame, scope, and other details should be mentioned clearly to ensure that this is applicable even after the development process is over.

The Bottom Line

Custom software development is getting adopted at a rising rate. Due to several advantages such as - expert developers’ services, professional software development, competitive software or product features, and others. While custom software support has high demand, there are certain risks unless you ensure a well-documented contract. By taking care of the above pointers you can be safeguarded from any future complexities.

Looking for custom software development? Third Rock Techkno offers an extensive range of professional product development services - from web development to voice development. Have a look at our diverse portfolio and drop us a line to start today.