5 Key Elements of an App Development Agreement

Welcome to another episode of Launched & Legal with Dayna Thomas, Esq., entrepreneurship attorney and law firm coach. Launched & Legal is an Atlanta Small Business Network original series dedicated to bringing entrepreneurs and business owners the best practices and tips for strategizing, legalizing, and monetizing their ventures. Today, Dayna highlights the essential elements of creating an app development agreement.

Transcription: 

Dayna Thomas:
So we know that we live in the age of technology. I don’t know about you, but almost every person that I meet has an idea for an app or some type of tech product. I may have had a few ideas myself. And as we’re building these tech businesses and these apps, I want to make sure that you know what you should be thinking about from a legal perspective when you do hire someone to build an app.

Dayna Thomas:
Now, building an app, being an app developer is such an awesome, awesome set of skills. However, usually those with the idea do not have the same set of skills that it requires to build an app. So we’re going to have to hire someone to build the app for us. So an app developer with an app developer and hiring anyone to do something as amazing as helping your app idea come to life.

Dayna Thomas:
You definitely want to have a contract with that person that lays out the elements of so many aspects of your work together. So today I’m going to be talking about five key elements of an app development agreement. Number one, the specifications, what are we building here? You have to be on the same page as your app developer about what’s being built. There has to be a series of conversations to even really get the app idea out, right? But not only that you have to make sure in your contract that you specifically list out the specifications of your app.

Dayna Thomas:
Notice that I didn’t say, just describe your app. The specifications, the qualities, the characteristics, the features, the dimensions. Everything that you will need in order to build the app that we’re actually talking about. So not only do you need to have a series of conversations, but make sure that in your actual agreement, you specifically lay out the features, the function, the design, the workflow, the dimensions, anything that you can think of to be as detailed as possible about what you’re building.

Dayna Thomas:
The last thing that you want to do is have something built. And it’s not exactly what you needed because that’s going to be more expensive. I’m pretty sure an app developer is not going to rebuild something without charging some more money. So make sure from the beginning that the specifications is as detailed as possible in your app development agreement so that you and your app developer are on the same page about what’s being built.

Dayna Thomas:
Number two, change order provisions. Now it sounds like what it is. If you want to order a change for the app, a change in the feature, a function, how do we do that? Maybe you started out with a certain idea, but along the way you want to make some tweaks here and there about what the specifications are or will be. Are you even allowed to do that? Do you have to give a certain amount of notice? What is the scope? Can you make big changes? Can you make small changes? Who pays for those changes?

Dayna Thomas:
So you want to make sure in your app development agreement that you have provisions for change orders. So sometimes even the app developer may want to request certain changes because as they’re building it, they’re seeing that certain functionality is impossible. Certain functionality is outside of the scope of the agreement, or maybe certain functionality is outside of the budget.

Dayna Thomas:
So how will changes to the specifications of your app be handled? Can you do it at any time? Are there only a certain amount of changes you can require? And what if it’s going to delay the schedule for the app? Is that still allowed? So make sure that you have specific instructions and provisions for your change orders in case you need to tweak your app here and there.

Dayna Thomas:
Number three, IP ownership and licenses. IP intellectual property, who is going to own the finished product of this app. Now, ideally it would be you as the business owner, you’re paying for the app, it was your idea. And you are hiring this app developer in order to build the idea that you have. However, when it comes to intellectual property, anything that can be patented, content that’s copyrighted, which all applies to building an app, you have to have a contract that says who will own it because the default law is whoever creates it, owns it.

Dayna Thomas:
So if you don’t have in your agreement, who will own the intellectual property in the app, any patents that may be involved, any copyrights that may be involved, whatever is being created, then by default, it’s going to go to who created it. And that is not the business owner. That will be the app developer.

Dayna Thomas:
So you have to have provisions in your app development agreement that specifically speaks to ownership. You want to have work for higher language, assignment language, meaning that the developer is assigning, also known as transferring the ownership of any IP from the app developer or their company to you. So be sure that those provisions regarding IP ownership is very clear and not only in the contract itself, but communicate that verbally to your or app developer, because you want to have what’s called a meeting of the minds. You want both sides to understand that this is what’s happening, this IP, although you’re developing, it will be owned by me or you, the business owner who’s ordering it.

Dayna Thomas:
The other thing that I want to mention is licenses. Maybe the app developer needs to use someone else’s IP in order to create the app that you need. You want to include in your app development agreement that those licenses have been secured or whose responsibility is it to secure those licenses. So if you need to use a copyright or something, or something that’s copyright protected or owned by a third party, who’s responsible for getting that license. Is it the app developer? Because they decided to put that in there. Is it the owner because it’s their app? Make sure you’re on the same page with that with your app developer. And please be sure to include that in your app development agreement.

Dayna Thomas:
Another thing that I want to mention regarding IP is that sometimes app developers include their own IP or their own intellectual property or something that they may own into building your app.

Dayna Thomas:
Many times the app developer should retain ownership of what they include that they own. However, the contract should state that you have a license, also known as permission, to use their IP in the app because they’re actually putting it in there. Number four, payment schedule. Now I’ve seen many situations with an app development agreement where both sides are not on the same page about payment schedule.

Dayna Thomas:
So you want to make sure that you specifically include that in your agreement. My recommendation would be that payment is split. I would not recommend paying the full amount up front because you never know if you’re going to get on the back end what you actually intended to get, or if you’re going to get it on time, or if the contract is going to be breached sometime along the way. So I would recommend tying payments for the app with milestones reached.

Dayna Thomas:
So you can have a two milestones, three milestones, 10 milestones, if you want to. So essentially you can submit a payment to get started and then specify what are these goals, milestones that we’re reaching along the way that will earn the app developer another payment?

Dayna Thomas:
So you want to make sure of that we’re meeting the schedule, we’re meeting these milestones. And honestly, one way to help do that is to have payments be tied to the completion of certain milestones. So make sure that you discuss the payment terms along the way. I would not recommend paying everything up front. I also wouldn’t recommend waiting until the end because that’s not really, it may seem motivating to the app developer, but they do want to have some money along the way so that they can be motivated to continue with your project.

Dayna Thomas:
So tie your payment schedule to certain milestones being reached. But not only that, you also want to be clear on who’s deciding if that milestone is reach. That could be a subjective, whether that milestone is reached or not. So I would recommend for the business owner, the one who was ordering this app, to be in charge of deciding whether that milestone is reached and of course being reasonable about it as well.

Dayna Thomas:
Number five, termination. Now building an app can take a while. We never know what’s going to change. We don’t know if the relationship is going to stay good. I hope so, but sometimes it just doesn’t work out and we want to make sure that the contract has provisions about if the app developer or you as the business owner wants to terminate the agreement. So what type of notice needs to be provided? Are there certain reasons why the contract can be terminated or can you just terminate for any reason if you decide that you want to go with different route?

Dayna Thomas:
Another thing to keep in mind is being specific that even if the contract is terminated, you as the business owner, you still own the intellectual property and whatever is being produced. I can understand if the app developer doesn’t want to do that, but that is something that you want to negotiate upfront.

Dayna Thomas:
If the project isn’t complete, do you still own all the IP for what has been developed? Do you still get the drafts and the notes? What happens after the contract is terminated? Touching on that piece. Sometimes we understand that, okay, whatever may have been built, that goes to the person who ordered or the business owner who ordered the app, but what about the app developer’s notes? What about their draft? What about content that didn’t make the cut? You as the business owner, do you get to keep all of that or do you get access to all of that, even though the contract is terminated?

Dayna Thomas:
You want to spell all of this out in your agreement. Another thing that I want you to be clear on in your agreement is passwords, access to accounts. So you want to specifically include that not only in termination, but specifically in termination, if there’s any passwords for any accounts or anything that the app developer had to use, or are they using certain websites in order to build your app, you should be able to get those usernames and passwords.

Dayna Thomas:
So layout exactly what will happen if a contract had to be terminated and make sure that you maintain ownership of that IP as the business owner. Lastly, number six, support and maintenance. Support and maintenance during the development process and after the development process.

Dayna Thomas:
I would recommend putting a response time in your app development agreement. We can face it, everyone is busy. But something as serious and expensive as building an app, you want to make sure that you are responded to within a reasonable period of time. So whether that is 24 hours, 48 hours, 72 hours, I would recommend putting in your contract what a reasonable response time is for if you have any support questions or questions from your app developer along the way as they’re building your app.

Dayna Thomas:
Equally as important is support and maintenance after your app is complete. Do you get to have any questions or send any questions for free to your app developer after they’ve already completed the app? Is that included for 30 days, is that included for six months, for a year? Do you get to ask them questions about how something works or maybe you can’t find a certain feature in your app?

Dayna Thomas:
That’s definitely something that has to be negotiated because it doesn’t have to be included in your agreement. What if you want an upgrade? What if there’s bugs that needed to be fixed in your app or updates to the app? Is that something that the app developer is responsible for? Be sure to lay that out in your agreement, because if it’s not in there, then it’s not included.

Dayna Thomas:
Well, I hope to today show help to educate and inspire you as you pursue your business goals. Be sure to share today’s show with someone who can benefit and visit myasbn.com and subscribe. If you have any questions or comments about today’s show, I would love to hear from you. Just send me a message or comment on Instagram @daynathomaslaw. Remember to tune in next week and every week to make sure your business is launched and legal.


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