SOFTWARE DEVELOPMENT AGREEMENT

This Software Development Agreement (the "Agreement") is entered into on [Date], by and
between [Client Name], a [Client's Business Entity Type], having its principal place of business
at [Client's Address] (hereinafter referred to as the "Client"), and [Developer Name/Company
Name], a [Developer's Business Entity Type], having its principal place of business at
[Developer's Address] (hereinafter referred to as the "Developer"). Collectively, the Client and
Developer are referred to as the "Parties".

RECITALS

WHEREAS, the Client desires to engage the Developer for the design, development, and
delivery of a custom software solution as per the requirements outlined in this Agreement;

WHEREAS, the Developer agrees to develop the software, deliver associated documentation,
and provide support and maintenance under the terms specified herein;

NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein,
the Parties agree as follows:

1. Purpose and Scope of Work

The Developer agrees to design, develop, and deliver a software solution (hereinafter referred to
as the "Software") that meets the Client's specifications as detailed in Appendix A (Software
Specifications). The Software will include [brief description of software functionality, such as "a
cloud-based e-commerce platform"] and will be developed in phases as outlined in the project
milestones.

Scope of Work Includes:

 Requirement’s analysis and system design

 Software coding, development, and testing
 Delivery of all required documentation (user manuals, system documentation, installation
guides)
 Installation and deployment support
 Provision of training and initial user support

The detailed scope, including functional and technical requirements, is outlined in Appendix A.

2. Deliverables

The Developer will deliver the following items to the Client:

  Source Code: The complete and well-documented source code for the Software.
 Executable Application: The compiled, ready-to-use version of the Software.
 Documentation: Technical documentation including architecture, code comments, and
user manuals.
 Deployment Assistance: Support during installation and deployment of the Software to
the Client’s live environment.
 Test Reports: Results of all unit tests, integration tests, and user acceptance tests (UAT).
 Training Materials: Basic training materials to help users and administrators operate the
Software.

Each deliverable will be subject to the acceptance criteria as described in Section 11 of this
Agreement.

3. Ownership of Intellectual Property (IP) Rights

Upon the full and final payment of all amounts due under this Agreement, the Client shall have
exclusive ownership of all intellectual property rights in the Software, including but not limited
to, all copyrights, patents, trademarks, trade secrets, and any other proprietary rights. The
Developer will transfer all source code, documentation, and related materials to the Client.

Until the final payment is made, the Developer retains ownership of all intellectual property
rights related to the Software. After final payment, the Developer retains no rights to use,
distribute, modify, or sell the Software, except for non-exclusive, non-client-specific components
that are part of the Developer's pre-existing intellectual property.

4. Payment Terms

The total contract value for the development of the Software is $[Total Contract Amount].
Payments will be made in the following milestones:

 20% ($[20% of total]): Upon signing this Agreement

 40% ($[40% of total]): Upon completion and delivery of the first milestone (detailed in
Appendix A)
 30% ($[30% of total]): Upon delivery of the completed Software
 10% ($[10% of total]): Upon final acceptance after the UAT phase as described in
Section 11

All invoices submitted by the Developer will be paid by the Client within 15 calendar days of
receipt. Failure to pay within the prescribed time will result in a late payment fee of 1.5% per
month on any outstanding amounts.
5. Payment Adjustments for Delays and Changes

5.1 Delays by the Developer:

If the Developer fails to deliver the Software in accordance with the agreed schedule due to
reasons within their control, the Client will be entitled to a delay penalty of 1% of the total
project cost for each week of delay, capped at 10% of the total project cost.

5.2 Change Requests:

If the Client requests changes to the scope of the Software, the Developer will assess the
additional time and resources required to implement such changes. A written change order will
be issued, detailing the additional cost and extended timeline. The rate for additional work
beyond the original scope will be calculated at $[Developer's hourly rate]/hour.

The Developer will not proceed with any changes until the change order is approved and signed
by both Parties.

6. Penalty Clauses

If the Developer fails to meet the delivery date without a valid reason or written approval from
the Client, the Client may impose a penalty of $[penalty amount] per day for each day the
delivery is delayed, capped at $[total cap]. If the delay extends beyond 30 calendar days, the
Client reserves the right to terminate the Agreement and demand a full refund of all payments
made to date.

7. Obligations of the Client

The Client agrees to the following obligations to ensure the timely and efficient completion of
the Software:

 Provide timely feedback on deliverables, designs, and other requests for information.
 Make available all necessary access to hardware, systems, and data required for
development.
 Assign a designated Project Manager to work closely with the Developer.
 Ensure that all payments are made according to the agreed schedule.

Failure to meet any of these obligations may result in delays, which will not be counted against
the Developer for the purposes of penalty or project deadlines.

8. Standard and Method of Working

The Developer agrees to perform its duties with the highest professional standards and in
accordance with the generally accepted practices of the software development industry. The
project will be developed using Agile methodology, with regular sprints, reviews, and client
feedback sessions. Development will be carried out in a controlled environment with version
control, testing, and backup procedures in place.

9. Progress Meetings

The Parties agree to conduct weekly progress meetings, which will take place via [platform,
e.g., Zoom, Microsoft Teams] or in person at mutually agreed times. The Developer will provide
a summary report at the end of each meeting, outlining progress, risks, and the tasks for the
upcoming week.

10. Project Manager

The Client designates [Client Project Manager’s Name] as the primary point of contact for the
project. The Developer assigns [Developer Project Manager’s Name] as the Project Manager
responsible for managing the development team, coordinating with the Client, and ensuring
project milestones are met.

11. Acceptance Procedure

Upon delivery of the final version of the Software, the Client will have 14 days to perform user
acceptance testing (UAT). During this period, the Client will thoroughly test the Software
against the specifications outlined in Appendix A. If any defects, bugs, or discrepancies are
identified, the Developer will have 15 business days to rectify the issues at no additional cost.

Once all issues are resolved to the satisfaction of the Client, a written acceptance certificate will
be signed by both Parties.

12. Warranty and Maintenance

12.1 Warranty:
The Developer provides a warranty for the Software for a period of 90 days from the date of
final acceptance. During this period, the Developer will correct any defects or errors in the
Software at no additional cost, provided the defects are not due to misuse, modification by the
Client, or external causes.
12.2 Maintenance:
After the expiration of the warranty period, the Developer will offer ongoing maintenance and
support services at the rate of $[Developer’s hourly rate]/hour. The details of maintenance
services and response times are described in Annexure A.

13. Termination

Either Party may terminate this Agreement under the following circumstances:

 Material Breach: If the other Party breaches any material term of this Agreement and
fails to cure such breach within 30 days of receiving written notice.
 Insolvency: If the other Party becomes insolvent, files for bankruptcy, or ceases business
operations.
 Force Majeure: If circumstances beyond either Party's control (such as natural disasters,
war, or legal prohibitions) prevent the performance of this Agreement for more than 60
days.

Upon termination, the Client will retain ownership of all completed work for which payment has
been made. If the Agreement is terminated by the Client for cause, the Client may seek
reimbursement for any payments made for incomplete or unsatisfactory work.

APPENDICES

Appendix A – Software Specifications and Milestones

This appendix includes detailed technical specifications, system architecture, and a breakdown of
milestones, including due dates for each deliverable:

 Milestone 1: Requirements gathering and system architecture – Due: [date]

 Milestone 2: First prototype with core features – Due: [date]
 Milestone 3: Final delivery of the Software – Due: [date]

Appendix B – Deployment and Installation Procedures

Detailed instructions for the installation of the Software, server configuration, database setup,
and any dependencies required.

Appendix C – Penalty and Delay Calculations

Detailed breakdown

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Here’s the detailed breakdown of key sections in the Software Development Agreement,
including a complete financial and penalty structure, milestone schedules, and other specifics:

BREAKDOWN

1. Payment Terms Breakdown

Total Project Cost: $100,000

This amount will be divided into four payment milestones:

1. Signing of the Agreement (20%)

o Amount: $20,000
o Due: Upon signing the Agreement
2. Completion of Milestone 1 (40%)
o Amount: $40,000
o Due: Upon delivery and approval of Milestone 1 (e.g., initial prototype,
requirements, system architecture)
3. Completion of Milestone 2 (30%)
o Amount: $30,000
o Due: Upon delivery of the final version of the Software (e.g., fully functional
application, tested and ready)
4. Final Acceptance (10%)
o Amount: $10,000
o Due: After successful user acceptance testing (UAT) and final acceptance by the
Client

Invoice Terms:
Invoices will be sent at the completion of each milestone and are payable within 15 calendar
days. Late payments will accrue interest at 1.5% per month on any outstanding balance.

2. Penalty Clauses Breakdown

Developer’s Delay Penalty:
If the Developer fails to meet the agreed deadlines without valid reasons or prior written consent
from the Client, the following penalties will apply:

 Delay Penalty: 1% of the total project cost ($100,000) for each week of delay, capped at
10%.
o Example: If the Developer is 2 weeks late in delivering Milestone 1, the penalty
would be 1% per week:
 1% x 2 weeks = 2% of $100,000
 Penalty Amount: $2,000 for a 2-week delay

Capped Penalty:
The maximum penalty the Developer can incur for delays is capped at 10% of the total project
cost, which equals $10,000. If delays exceed 30 days, the Client has the right to terminate the
Agreement and claim a full refund of all payments made.

3. Client Change Request Breakdown

Change Request Rates:

If the Client requests changes outside the original scope of work (detailed in Appendix A), the
Developer will charge $100/hour for any additional time and resources required.

Example Calculation:
If a change request adds an additional 20 hours of work, the total cost will be calculated as:

 20 hours x $100/hour = $2,000

Process:

1. The Developer will provide a written change order estimate, including the additional cost
and any changes to the timeline.
2. No changes will be implemented without prior written approval from the Client.

4. Warranty and Maintenance Breakdown

Warranty Period:

 The Developer provides a 90-day warranty after the final acceptance of the Software,
during which any bugs, defects, or issues will be corrected at no additional cost.

Maintenance Post-Warranty:
  After the warranty period, the Developer will provide maintenance and support services
at the rate of $100/hour.
 Annexure A provides details of the maintenance agreement, including response times:
o Critical issues (e.g., system crashes): 24 hours response time
o Non-critical issues (e.g., minor bugs): 48 hours response time

5. Termination Breakdown

Termination can occur under the following conditions:

Material Breach:

 Either Party can terminate the Agreement if the other Party materially breaches the terms
and fails to remedy such breach within 30 days of receiving written notice.

Insolvency:

 If either Party becomes insolvent, ceases operations, or files for bankruptcy, the
Agreement may be terminated immediately.

Force Majeure:

 If events beyond the control of either Party (such as natural disasters, war, or government
regulations) prevent the fulfillment of the Agreement for more than 60 days, either Party
may terminate.

Compensation on Termination:

 Upon termination, the Client retains ownership of all completed work for which payment
has been made. The Developer must refund any payments for incomplete work.
 If the termination is caused by the Developer’s delays exceeding 30 days, the Client is
entitled to a full refund of all payments made to date.

6. Project Milestones Breakdown (Appendix A)

Amount
Milestone Description Due Date
Payable
Milestone 1: Requirements gathering, system design, initial $40,000
[Date]
Prototype prototype with core features (40%)
Milestone 2: Final Complete Software, including all agreed $30,000
[Date]
Version features, bug-free, ready for deployment (30%)
 Amount
Milestone Description Due Date
Payable
$10,000 [Date, after
Final Acceptance User acceptance testing, final approval
(10%) UAT]

Delivery Timeframes:

 Milestone 1: To be delivered within 60 days from the signing of this Agreement

 Milestone 2: To be delivered within 45 days after completion of Milestone 1
 Final Acceptance: Within 14 days after the completion of user acceptance testing (UAT)

7. Acceptance Testing Breakdown (Section 11)

User Acceptance Testing (UAT):

The Client will have 14 calendar days to perform acceptance testing of the Software upon
delivery of the final version. The following will be tested:

 Functional correctness: Does the Software meet the specifications in Appendix A?

 Performance: Is the Software operating efficiently without lags or crashes?
 User interface: Is the user experience aligned with agreed standards?

If the Software does not meet the acceptance criteria, the Client will provide a detailed report of
issues within the 14-day period. The Developer will then have 15 business days to resolve the
issues and resubmit the Software for acceptance.

Final Acceptance:
Once the Software meets the acceptance criteria, the Client will issue a formal written
acceptance certificate. This will trigger the final payment of $10,000 (10%) to the Developer.

8. Penalty Calculations Breakdown (Appendix C)

Delay Penalty Example:

 If Milestone 1 is delayed by 3 weeks, the delay penalty would be 3% of the total contract
amount ($100,000).
 Penalty Amount: 3% x $100,000 = $3,000

Late Payment Penalty Example:

 If the Client fails to pay an invoice of $20,000 on time (i.e., within 15 days), a late
payment penalty of 1.5% per month applies.
 Penalty Amount: 1.5% of $20,000 = $300/month
9. Maintenance Agreement (Annexure A)

Post-Warranty Support Breakdown:

 The Developer will provide maintenance services at a rate of $100/hour. The support
includes addressing bugs, system issues, and other modifications as needed.
 The support agreement includes a response time guarantee based on the criticality of the
issue:
o Critical issues (e.g., system crashes, major bugs affecting functionality): 24 hours
response time
o Non-critical issues (e.g., minor bugs, UI improvements): 48 hours response time

The Client may opt for a monthly maintenance plan at a fixed rate of $2,000/month, which
covers up to 20 hours of support per month. Additional hours will be billed at the standard
hourly rate.

10. Change Request Process (Annexure B)

Change Request Process Breakdown:

If the Client requests additional features or changes beyond the agreed scope in Appendix A, the
following process will be followed:

1. Submission: The Client submits a written request for the change.

2. Estimation: The Developer assesses the impact on time, resources, and costs.
3. Change Order: A formal change order will be issued, which outlines the cost and
revised timeline. The Client must approve the change order before work begins.

Example:
If a requested change adds 30 hours of development work, and the Developer’s hourly rate is
$100/hour, the change order cost will be:

 30 hours x $100/hour = $3,000

The revised timeline will be updated according to the Developer’s estimation, and any delays
caused by change requests will not incur penalties for the Developer.

This detailed breakdown covers the financial structure, milestones, penalties, and maintenance
aspects of the Agreement, ensuring that both the Client and the Developer have clear
expectations and terms for the project delivery.