Legal Issues When A Business Hires A System Developer For Their Business System

by | May 5, 2023 | Business, Contracts, Featured, Law

Businesses are starting to embrace technology in some form of another. As simple as having a website is an example of businesses using technology. There are also those who use systems for accounting, CRM, payment gateways etc. When a business hires a system developer to create or improve their business system, there are several legal issues that both parties should be aware of. Here are a few examples:

  1. Ownership of intellectual property: The first issue is determining who owns the intellectual property rights to the system that is being developed. In general, the default rule is that the developer owns the copyright to the software, unless the parties have agreed otherwise. It is important for the parties to negotiate and agree on ownership of intellectual property rights in the system, as this will determine who can use, modify, or sell the system. This is an issue which I have personally encountered several times as businesses often think wrongly that they own the system. When the business does not own the system, the developer can re-sell the same system to their competitors.

For example, if a company hires a developer to create a custom inventory management system, the company should ensure that they own the  the system and have the source code, so that they can use it and prevent others from using it without permission.


  1. Confidentiality and Non-Disclosure: The second issue is maintaining the confidentiality of the system and its development process. Businesses often share confidential information with their system developer, such as trade secrets, customer data, and business strategies. It is important for the parties to sign a non-disclosure agreement (NDA) to protect the confidentiality of the information shared.

For example, if a company hires a developer to create a new payment processing system, the company should ensure that the developer signs an NDA to prevent them from sharing the details of the system with third parties.


  1. Scope of Work: The third issue is defining the scope of work for the project. This includes setting out the requirements for the system, timelines, and milestones. It is important for both parties to have a clear understanding of what is expected from each other and to document the scope of work in a written agreement. Parties should also have a provision for additional or variation of the scope of work to ensure that the progress of the development of the system is not unnecessarily delayed.

For example, if a company hires a developer to create a mobile app, the scope of work should specify the features of the app, the platform it will be developed for, and the deadline for completion.


  1. Payment and Compensation: The fourth issue is determining the payment and compensation for the developer’s services. This includes the hourly rate or flat fee, payment schedule, and any performance incentives. The parties should negotiate and agree on the payment terms in advance and document them in a written agreement. The terms of the payment, such as progress payment, when progress payment is made and the right to withhold payment if the progress of the work is not according to schedule should also be included.

For example, if a company hires a developer to create a website, the payment terms should specify the hourly rate or flat fee, payment schedule, and any performance incentives for meeting deadlines or exceeding expectations.


In summary, when a business hires a system developer, it is important to consider these legal issues to protect both parties’ interests and ensure the successful completion of the project.


Nik Erman Nik Roseli Commercial Lawyer

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