Custom software development is not just about coding. It's about effective communication, mutual understanding, and well-drafted contracts.

Contracts define terms, conditions, and expectations that may arise during the project. But when the contract itself fails to protect your interests, it can lead to disastrous results for your business.

Here we'll discuss ten potential disasters to avoid when writing a contract for custom software development services.


Custom software development is a complex process that involves multiple stakeholders, including clients, vendors, project managers, and developers. A well-drafted contract can help all parties achieve their goals and mitigate potential risks.

As the client, you need to ensure that the vendor delivers what they promised and meets your expectations. Vendors need to ensure that they are paid in a timely manner.

Here are ten disastrous consequences that can stem from a poorly-written contract:

Disaster #1: No termination clause

Can you fire the vendor if they fail they deliver substandard work? Without a clear termination clause, you may not have the legal authority to terminate the contract, which can result in delays and financial losses. be sure you have a termination clause that lets you end the contract immediately if you are not happy with the software company's performance.

Disaster #2: Ambiguous scope of work and unclear process software development process

What if the software development company interprets the scope of work differently from what you intended? Do they have a process that can help surface that difference so you can address it? If not, this can lead to disputes and project delays. A clearly-defined scope of work can avoid misunderstandings, but for all but the simplest projects, the scope of work is not enough. You must define the process the development company will use to build the software so you have opportunities to see the work in progress, give feedback, and have the software company change course if needed.

Disaster #3: Vague payment terms

What if you are late on payments, or the vendor demands payment for unfinished work? Clear payment terms help both clients and vendors avoid disputes and financial losses.

Disaster #4: No intellectual property rights

What if the vendor holds the code ransom and refuses to give you access to it? What if they use the code for other client projects without your permission? A well-written contract will define intellectual property rights so everything is clear. Most software development contracts in the United States and western Europe are work-for-hire type contracts where the company paying for the work owns all the intellectual property.

Disaster #5: No liability clause

What if the vendor delivers faulty code that causes harm to your business or customers? Without a liability clause, the vendor may not be legally responsible for the damages. The software company will want to limit that liability, but often the limits are based on what an insurance company would pay out. Be sure any liability limits are sufficient to cover your business loss risk.

Disaster #6: No confidentiality agreement

What if the vendor leaks your confidential information to competitors or third parties? A confidentiality agreement can protect your trade secrets and sensitive information. Look for confidentiality agreements that extend beyond the completion of the project and the termination of the contract, usually a year or more.

Disaster #7: No dispute resolution mechanism

What if a dispute arises between you and the vendor during the project? Dispute resolution mechanisms help the parties resolve the dispute without going to court. You may want to use binding arbitration or some other, less expensive options to sort out disputes.

Disaster #8: No non-compete clause

What if the software company hires your developers? What happens if one of your managers casually mentions that one of the software developers should join your company as an employee? A non-compete clause can define what happens in either of these scenarios and can reduce the risk of this happening for everyone.

Disaster #9: No conflict of interest clause

What if the software company starts working a similar project for your competitors? A conflict of interest clause can assure you that the software company isn't currently working on the same problem with another client or with a close competitor in your industry.

Disaster #10: No support agreement

Finally, your software is in production, but you just found a bug. Do you have a support agreement that defines the role of the software development company for something like this? Will production support be needed, or will your company's IT department take that role? Be sure to think through the maintenance phase of your software and how you want to handle that.


A well-drafted software development contract can help both parties achieve their goals and mitigate potential risks. By avoiding the disasters mentioned above, you can ensure that your project is completed smoothly.

At Volare Software, we have been successfully completing custom software projects since 2009, and we understand the importance of a well-drafted contract. Contact us today to learn more about our custom software development services.