Fixed price IT outsourcing contracts

Fixed price contract or Waterfall (WTF) contract is a project-based software development contract where parties agreed to determine the deliverables to be produced in a Statement of Work (SoW) early on the in the procurement lifecycle. WTF IT outsourcing contract is a great way for a customer to pin his vision of future developed software with all obligations, rights and responsibilities during the project execution. Here, I would like to present its main specifications and note important provisions worth being a part of your agreement. We will proceed with the following important issues:

    1. Definitions;
    2. Subject matter;
    3. Transfer of Deliverables;
    4. Payments;
    5. Intellectual Property Rights;
    6. Liability and Confidentiality;
    7. Warrants;
    8. SoW and Certificate of Completion.

Definitions.

In the very beginning of the contract, it might be nice to determine most commonly used words and its features in definitions clause. Such specifications allow contracting parties to have the same understanding of the contract’s wording. For instance, you may determine the meaning of deliverables, Statement of Work, services, customer’s materials etc. 

Subject matter.

Nextly, the subject matter is the main part of every contract which shall be specified accurately. For example, if you are a software developer (sole proprietorship) it is obligatory to provide services exclusively within your type of economic activities determined by the statistical classification of economic activities. Usually, it includes design, development, delivery, testing, maintenance and support of all deliverables set forth in agreed Statement of Work. Clauses towards amendments to the scope of work are considerable enough. It might be forbidden to amend somehow already agreed Statement of Work (which is not beneficial for both contracting parties) or, contrary to that, allowed under a written agreement signed by both parties. 

It is also wise to include provision about the possibility for contractors to assign sub-contractors and specificity of its relationships should such a right to be allowed for the contractor under this subject matter section. For example, you may include the following wording:

“Contractor may assign and/or transfer the performance of the services, or any of its rights and/or obligations hereunder, without the customer’s prior written consent, to sub-contractors, provided that each such sub-contractor shall have agreed in writing to be bound by terms and conditions at least as stringent and restrictive as the terms and conditions hereof. If sub-processor fails to fulfil its obligations, the Contractor shall remain fully liable to the Customer for the performance of sub-contractor’s obligations.”

Transfer of deliverables.

One of the main provision needed to be agreed is a procedure of transfer of results of work. We advise you to pay attention to the next points:

  1. delivery;
  2. acceptance;
  3. and rejection of Deliverables. 

First of all, you need to choose the storage location (it might be software repository, cloud storage etc.) where deliverables will be uploaded to. Once the results have been uploaded to that storage location contractor shall provide the customer with a Certificate of Completion by no later than the applicable date specified in a Statement of Work (if any) or another date mutually agreed upon by the parties. 

Secondly, we recommend you to specify the exact number of days within which deliverables shall be accepted or rejected. If the customer accepts the deliverable (or its part), the customer shall sign a Certificate of Completion and provide a copy of a Certificate of Completion to the contractor.

And thirdly, if the results have yet been rejected (due to some inconsistencies with the already agreed scope of work) we advise you to provide for the customer’s obligation to give written notice (email acceptable) of rejection with an explanation of the grounds for its rejection and the corrections required for acceptance. Do not forget to specify the period for such correctness. 

Payments.

One of the primary specificity of the Fixed price contract is pre-arranged payment. Usually, contracting parties agree that customer will pay a predetermined fee in Statement of Work within n-number days after signing the Certificate of Completion. 

What about fees if the Waterfall contract has been terminated? This part shall be agreed in advance to avoid possible litigations on this matter. Sometimes parties just add to the contract a provision stating that customer will be obligated to pay the portions of the fee earned prior to terminated according to the scope of work. 

Intellectual property rights. 

Here we are. This is the most intriguing part of any agreement between software developer and customer. It is in best interests of customer to receive all intellectual property rights assigned by contractor from the very moment of deliverables creation since being the rightful and exclusive owner of all deliverables is a high priority for customer. Additional confirmation of the transfer of all IP rights may be an upload of the work results to the storage location or signing the Certificate of Completion.

Another crucial point for customer remains a license grant. Thus, we advise to include the following wording in the contract:

“Customer is the rightful and exclusive owner of all Deliverables and all other works of authorship made by the Contractor in performance of this Agreement, including all source code of all the foregoing, whether or not eligible for patent, copyright, trademark, trade secret or other legal protection, and any and all related patents, patent applications, trademarks, copyrights, trade secrets, and other proprietary rights.”

Sometimes customer provides a vendor with tools and engines. Therefore, it is advised to Customer to oblige Contractor not to reproduce, disclose, distribute or disseminate any Customer Materials in any form or medium except as necessary to perform the services. 

Liability and confidentiality.

Parties used to include different provisions on liability towards breach of Intellectual Property Rights,  breach of obligations with the respect to the termination of agreement, breach of contractor’s indemnification obligations etc.

Contracting parties pay pretty much attention to own confidential information that might be disclosed during project-based contract performance, and therefore distributed to third parties. To get yourself out of any wrongdoing, state in Fixed price contract that each party will take reasonable precautions to protect the confidentiality of confidential information received from the other party, which precautions will be at least equivalent to those taken by such party to protect its own confidential information of similar type.

Established practice shows that a major influential factor not to disclose information remains high fines. Thus, put such fines deemed to be effective. Usually, it starts with 10 000$.

Warrants.

Under this section, both parties guarantee to perform this Waterfall contract with all a goodwill. For instance, both contractor and customer warrants that this Fixed price contracts will be duly executed and delivered and will be a valid, binding and enforceable obligation of such party or that no consent of any person or entity not a party to that agreement will be required or necessary for it to carry out its obligations.

You might definitely include separate warrants for contractor and customer accordingly. As you wish 🙂

Statement of work and certificate of completion.

Statement of Work and Certificate of Completion is considered to be the most important integral parts of the whole WTF agreement. 

Let’s start with the Statement of Work. 

That’s the most contributing part of the Fixed price contract. SoW is the document that captures and defines every aspect of your software development contract. All services, activities, deliverables, timelines/milestones shall be specified there. Each Statement of Work shall set forth the specific terms related to the Deliverable listed in that Statement of Work, including the Deliverable Description, Development Milestones, Development Fees and additional terms and conditions with respect to a particular Deliverable.

We strongly recommend you first draft and sign this document, and only then your main contract. 

What about Certificate of Completion? 

This document is mainly important for vendors since it is the required document for sole proprietorships by law. This is also reliable documentary evidence that all services under concluded contract have been performed in a timely and proper manner, and there are no final comments from the customer’s side. By signing off parties state they have no claims against each other. Customer, in turn, may further state that Contractor hereby transfers the Customer all intellectual property rights in and to the Deliverables without limitation in time, area and type of use.

For sure, there are many other necessary provisions should be made a part of Fixed price contract, one of the type of software development agreement. We strongly recommend you before signing off this Waterfall contract to contact lawyer in order to securely protect all of your rights in your IT contract. Always remember, that contract is the very first thing parties refer to in case of any disputes.

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