Key Points for Drafting English Software Development Agreement

Providing a free sample of English software development agreement

We offer a free sample of a software development agreement in English. If you are considering drafting a software development agreement in English, please take a look.
Free Sample Software Development Agreement

What is a Software Development Agreement?

A software development agreement is a contract in which the client　 commissions a developer to perform software development work, and the developer commits to developing software to meet the needs of the client. Since the contractor performs the development work and receives payment for it, it is considered a type of contracting contract.

Examples of English Software Development Agreement

A typical example of the English software development contract would be when a Japanese development company develops game software or application software for cell phones on behalf of a foreign company. Conversely, a Japanese company may outsource software development to a foreign company. In recent years, development of the consignor’s internal management system or cyber security-related products is often outsourced as part of DX.

Benefits of English Software Development Agreement

When concluding an English-language software development agreement, software development can be outsourced to an overseas company, making it possible to develop software using the capabilities of engineers that do not exist in Japan. In addition, recently, software development is often conducted in countries with low labor costs, such as Thailand, Vietnam, and Indonesia.

Nature of English Software Development Agreement

Under Japanese law, software development contracts are often considered to be subcontracts under the Civil Code. Therefore, when Japanese law is applied, the provisions related to contract agreements will be applied. Under the previous Civil Code, the contractor did not have the right to claim payment of the contract price until the completion of the construction work under the contract, but the Civil Code was amended in 2009, making it a general rule that the contract price is paid to a certain extent.

What to Do if the Development Agreement is Terminated in the Middle of the Term

If the contractor is unable to complete the work due to reasons not attributable to the client (when performance becomes impossible due to reasons not attributable to both parties, or due to reasons attributable to the contractor), the contractor shall be entitled to claim compensation in proportion to the percentage of profit received by the client (Article 634 of the Civil Code). Conversely, if the contracted work cannot be completed due to reasons attributable to the client, the contractor may claim the full amount of the construction fee according to the interpretation of Article 536, Paragraph 2 of the Civil Code. Since these are optional provisions, if the parties have made an agreement different from these, the agreement of the parties shall take precedence.

Preamble to the English Software Development Agreement

The preamble of an English software development agreement should clearly state who and when the software development agreement was concluded.

(Sample)
This Software Development Agreement (“Agreement”) is made and entered into upon August 31, 2022 (“Effective Date”) by and between XXX Corporation, a company duly organized and existing under the laws of Japan, having its principal office of business at ● (“Developer”) and YYY company, a company duly organized and existing under the laws of California, United States, having its principal place of business at ● (“Client”).

Whereas Clause in the English Software Development Agreement

A “Whereas Clause” is a contractual provision that describes in simple terms how the parties came to the conclusion of the contract and the overall contract.

(Sample)
WHEREAS, Developer is engaged in the business of design and development of the software and related materials to be used in web and mobile applications; and
WHEREAS, Client wishes to engage Developer and Developer agrees to be engaged by Client to develop the software customized specifically for Client (“Software”); and
NOW, THEREFORE, in consideration of the promises, rights and obligations set forth below, the parties hereby agree as follows

Entrusting the Developer in English Software Development Agreement

This section simply states that the customer consigns software development work to the developer and the developer agrees to accept the consignment. Since this is the backbone of a software development agreement, it is necessary to state as clearly as possible what kind of development work was entrusted.

(Sample)
Subject to the terms and conditions hereof, Client shall retain the services of Developer to design, develop, and implement the Software (the “Work”) in accordance with the specifications attached hereto as Exhibit A (“Specification”).

Developer’s Obligations and Responsibilities under the English Software Development Agreement

Describe how the developer will perform the development work (the developer’s duties and responsibilities), including the level of duty of care in the development work and whether subcontractors may be used.

(Sample)
Developer will utilize its employees and/or outside contractors capable of designing and implementing the Software to be developed hereunder. All work shall be performed in a professional and workmanlike manner.

Specification Changes in the English Software Development Agreement

The biggest problem in software development agreements is how to change the terms of the agreement such as remuneration and delivery date, when specification changes occur during the agreement. If there is no clear agreement on specification changes, disputes often arise because the finished product does not conform to the wishes of the agreement.

(Sample)
In the event Client wishes to make any modification or the change to the Specification, Client must provide a detailed proposal to Developer in writing, Client and Developer shall sincerely consult each other as to the modifications or changes on the Specifications requested by Client and necessary amendment on this Agreement.

Delivery of Software under the English Software Development Agreement

In software development agreements, delivery dates are an important part of the agreements it is important that delivery dates are also properly stated.

(Sample)
Developer shall complete the development of the Software and deliver the Software according to the time schedule attached hereto as Exhibit B.

Inspection by Customer

How inspections are performed is an important detail in software development agreements. It is often stipulated that the right to claim payment of the agreement price arises only after the software has passed inspection. It is also necessary to clarify the relationship with the right to claim for repair in case of quality defects, such as when the software does not perform as required by design.

(Sample)
Client shall inspect the Software within ten (10) days from the date of delivery of the Software (“Delivery Date”).
If the Software as delivered does not conform with the Specification, Client shall within ten (10) days from the Delivery Date notify Developer in writing of the ways on which it does not conform with the Specification.
If Client does not notify Developer of the inspection results after ten (10) days from the Delivery Date, the Software shall be deemed to have passed the inspection prescribed in the first paragraph hereof.

Payment under the English Software Development Agreement

The contractual content regarding payment in a software development outsourcing contract constitutes the framework of the contract. In most cases, payment is made after the software is completed and delivered, but in some cases, a lump-sum payment is made at the time of agreement, or interim payments are made during the development process according to the degree of progress. In international agreements, it is necessary to specify the currency in which payment will be made and the method of overseas remittance. It is also important to note whether consumption tax or value-added tax (VAT) will be imposed.

(Sample)
In consideration for the development of the Software, Client shall pay Developer the sum of JPY 1,100,000 including consumption tax, and all other costs and expenses relating to the development of the Software.

Warranty under the English Software Development Agreement

It is necessary to stipulate what responsibility the developer bears in the event of a defect in the developed software. Under the Japanese Civil Code, liability for defects has been changed from warranty liability to contractual nonconformity liability, and in addition to compensation for damages and termination of the agreement, repair of the subject matter and delivery of substitute goods are also permitted. This section defines what kind of warranty liability the developer is responsible for. In addition, it is usual to stipulate a quality assurance period to prevent the developer’s liability period from becoming extremely long.

(Sample)
Developer warrants that for the period of one (1) year from the Delivery Date, the Software will operate substantially according to the Specification. In the event of any breach of the warranty in this paragraph, in addition to any other remedy to which Client may be entitled, Developer shall take all action necessary at its expense to cause the Software to operate according to the warranty.
Developer warrants that the Software will not infringe upon any copyright, patent, trade secret or other intellectual property interest of any third party. Developer will indemnify and hold Client harmless from and against all such infringement claims, losses, suits and damages including, but not limited to, attorney’s fees and costs, and shall immediately correct the Software so as not to be infringing, or secure the right of Client to use the Software without infringement.

Copyright in the English Software Development Agreement

The developed software program is subject to the right of copyright, and the right is protected by copyright law. In an English software development agreement, software is developed according to the wishes of the client, the consignor, and is delivered to the consignor, so it is usually assumed that the copyright of the software produced belongs to the developer.

(Sample)
All copyrights to the software, programs, and other deliverables included in the Software shall belong to Client, and Developer shall not exercise moral rights of authorship.

Relationships in English Software Development Agreement

The relationship between the client, the contractor, and the software developer, the trustee, is not an employment agreement and does not create an employer-employee relationship, so the provisions of labor law do not apply. The relationship with the software developer is not an employment agreement and does not create a relationship between an employer and an employee, so the provisions of the Labor Law do not apply.

(Sample)
Developer is acting as an independent contractor with respect to the services provided hereunder. Neither Developer not the employees of Developer performing services for Client will be considered employees or agents of Client.

Confidentiality Obligations in English Software Development Agreements

In a software development agreement, the consignor shows the specifications and development procedures of the software to the consignee, and the consignee discloses to the consignor know-how and confidential information concerning the software development. If the contractor uses the know-how and confidential information disclosed by the contractor to develop and sell similar software to the contractor’s competitors, the contractor will suffer serious damages. Therefore, it is necessary to clarify that the confidential information disclosed in the course of the software development contract shall be kept strictly confidential and shall not be used for any other purpose.

(Sample)
The party hereof shall keep strictly confidence and shall not disclose technical information or any other confidential information received from the other party (the “Disclosing Party”) to any third party without the prior written consent of the Disclosing Party except to the specified person or entity who need to know the same for the development of the Software. The party receiving technical information or any other confidential information (the “Receiving Party”) shall use the same only for the purpose of manufacturing and selling Products under this Agreement, and shall not use the same for any other purpose. This article shall not apply to the followings:

• (a) Information which at the time of disclosure is in the public domain;
• (b) Information which, after disclosure, becomes part of the public domain, by publication or otherwise other than through unauthorized disclosures by the Receiving Party;
• (c) Information which at the time of disclosure is already in the Receiving Party’s possession as shown by its written records;
• (d) Information which is made available to the Receiving Party by an independent third party who does not owe any confidential obligation;
• (e) Information which is requested to be disclosed by a court order.

Term of English Software Development Agreement

In software development agreements, it is also necessary to clarify when the validity period of the agreement begins and when the agreement ends. It should also be clear whether the agreement will be renewed when the agreement term expires, whether the agreement will be renewed automatically or only with the agreement of the parties, etc.

(Sample)
This Agreement shall commence on the Effective Date and shall continue to and through September 30, 2022, unless renewed by further agreement in writing between the Parties.

Prohibition of Bribery in English Software Development Agreement

When bribery of a state official or other official is committed in the course of a software development agreement, both the contractor and the client may be punished under criminal law, even if the act is committed by the contactor. In the U.S., there is a law called FCPA, and in the U.K., it is prohibited by the Bribery Act. In Japan, it is prohibited by the Unfair Competition Prevention Act.

(Sample)
Either of the Parties hereto shall not, and shall cause its employee, agents, consultants or subcontractors or their employees, agents or consultants not to (a) use any funds for unlawful contributions, gifts or entertainment or for other unlawful expenses or (b) make any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns, whether or not such contributions, gifts, or entertainment, expenses or payments are facilitation payments.

Force Majeure in English Software Development Agreement

The provisions for force majeure in software development agreements also do not differ from the usual case. Considering the recent earthquakes and pandemics, it is quite possible that a force majeure event may occur. Depending on how force majeure is stipulated, it may make a difference whether a party is exempted from the performance of its obligation in the event of a force majeure event, or whether the party is not exempted from the responsibility for performance of its obligation merely because the completion of performance is postponed.

(Sample)
Neither party shall be liable to the other for any delay or failure in the performance of its obligations under this Agreement if and to the extent such delay or failure in performance arises from any cause or causes beyond the reasonable control of the party affected (“Force Majeure”), including without limitation, act of God, acts of government or governmental authorities, compliance with law, regulations or orders, fire, storm, flood or earthquake, war, rebellion, revolution, acts of terrorism or riots, epidemics, strike or lockouts.

Prohibition of Assignment in English Software Development Agreement

Since a software development agreement is concluded by relying on the other party’s creditworthiness and software development capabilities, a party may suffer damages if the other party unilaterally transfers the contractual status or the rights and obligations under the agreement to a third party. Therefore, it is generally accepted that a contractual status or rights and obligations arising under a software agreement cannot be transferred without the other party’s consent. A provision prohibiting the transfer of contractual positions may act as a change of control clause, which states that a change in control of the company, such as a shareholder, cannot be made without the consent of the other party.

(Sample)
Neither party may assign any of its rights or obligations under this Agreement to any third party without the prior written consent of the other party.

Governing Law in English Software Development Agreements

Since English-language software development agreements are usually used as international software development agreements for parties of different nationalities, it is necessary to clarify which country’s law (governing law) is applicable to the agreement.

(Sample)
This Agreement shall be governed by and construed in accordance with the laws of Japan.

Dispute Resolution Clause in English Software Development Agreement

Since English-language software development agreements are usually used as international software development agreements for parties of different nationalities, it is necessary to decide which country’s dispute resolution organization will be used to resolve disputes between the parties in the event that a dispute arises. It is also usual to specify whether the dispute will be resolved by a court or through arbitration procedures.

(Sample)
All disputes, controversies, or differences which may arise between the parties, out of or in relation to or in connection with this Agreement shall be finally settled by arbitration in Tokyo, Japan in accordance with the Commercial Arbitration Rules of the Japan Commercial Arbitration Association. The award shall be final and binding upon both parties.

Making a Counterparty to an English Software Development Agreement

Since the software development agreement is to be signed by each party and the original is to be sent to the other party for control, multiple originals will be created. In this case, any of the originals will be a valid original. Recently, it seems that in many cases, a PDF signed by each party is sent to the other party by e-mail, and each party keeps only the PDF sent by the other party.

(Sample)
This Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original and all of which when taken together shall be deemed to be one and the same agreement. In the event that this Agreement is executed in both the English and Japanese language, the English text shall govern in the event of any discrepancies.

Amendments to the English Software Development Agreement

This clause relates to amendments to English-language software development agreements. It clarifies that oral amendments are not permitted and that any amendment to the terms of the agreement must be made in writing.

(Sample)
This Agreement may not be amended except by an instrument in writing signed on behalf of all of parties herein.

Waiver in English Software Development Agreement

General statement regarding waiver of rights. Failure by a party to waive its rights or to take steps to remedy its rights does not restrict it from exercising any other remedies or subsequent remedies for default.

(Sample)
No waiver of any term of conditions of this Agreement shall be deemed to be a further or continuing waiver of that terms or conditions or a waiver of any other terms or conditions.

Notices in the English Software Development Agreement

Since an English software development agreement is prepared for an international software development agreement, it is necessary to clarify the method of notice (declaration of intent) to the other party. Recently, e-mail is becoming more and more common, but since e-mail is susceptible to alteration, it is often required that the notice be sent by fax, international courier, or some other method that is not susceptible to alteration.

(Sample)
All notices and other communications shall be in writing and shall be given by registered airmail, international courier or by facsimile, or by other means providing proof of delivery to the parties at their respective office first above referred to or to any other address of which a party notifies the other in accordance with this Article.

Complete Clauses in the English Software Development Agreement

In an English-language software development agreement, only the matters described in the agreement are binding on the parties, and matters not described in the agreement have no effect as an agreement between the parties, even if they were agreed orally. This is the principle of exclusion of oral evidence, which is the content of the Parol Evidence Rule in Anglo-American law.

(Sample)
This Agreement constitutes the entire and completer agreement between the parties concerning the subject matter of this Agreement and supersedes all prior agreements.

Signature Section of the English Software Development Agreement

In an English-language software development agreement, each party signs and delivers the original to the other party. Unlike Japanese agreements, a seal is not required. Signatures are made by the person authorized to sign the agreement by writing his or her name in roman characters. In some cases, only initial signatures are required, without the full name.

(Sample)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in duplicate by their duly authorized officers or representatives.