Important Points to Consider When Entering into Web Site Development Agreements

When web developers and their clients interact, a variety of different responses can occur.

Some are so eager to get started on the project that they completely disregard the legal contract; others simply work under the standard terms without looking at them; and still others sit down and negotiate a deal that works for both parties.

We advocate for the latter course of action so that, prior to the start of the project, both the developer and client evaluate their respective expectations for the outcome. There are numerous standard terms that apply, but this article will focus on several critical legal issues that must be addressed at that stage.

Defining the Scope of the Work

For projects with fixed fees, it is critical to define precisely what will be accomplished for that fixed fee. A detailed specification of the site is required (both in terms of functionality and “look and feel”). Additionally, it should address the functionality required to make the site legally effective (e.g. having the correct pop-up window with terms of business that can only be accepted by clicking the “I accept” button). Additionally, it is critical to explain how additional work, above and beyond the fixed fee work, will be charged.

The agreement should spell out the impact and consequences of delay, as well as any actions required on the client’s part, and require the client to complete any tasks assigned by the developer in a timely manner.

Establishing Milestones

Many projects will be delivered in stages. It will be appropriate to pay the fee in instalments linked to milestones for all but the most basic websites. The outcomes against which milestones are to be measured must be precise and quantifiable. The web developer will want to ensure that the contract allows them to withhold further work until a specific milestone is paid for. The client will want to ensure that appropriate rights are automatically granted upon payment of each milestone invoice, rather than acquiring rights only after the above product is completed – for example, a license or a transfer of copyright. This is because it is not uncommon for developers and their clients to complete work in the middle of a project and, provided the client has been compensated for the work completed to that point, it is reasonable for the client to acquire rights in the work product to that point.

Testing of Acceptance

The agreement should define various milestones in terms of testing to ensure the effectiveness of critical functionality.

Warranties

The client will want to ensure that the developer either created the website’s content or acquired the necessary rights to enable the site to function and be developed independently of the contractor who developed the website initially. Warranties will therefore be required regarding copyright ownership, the ability to grant any licenses included in the contract, and the absence of any infringements on the intellectual property rights of third parties.

If the developer is responsible for ongoing maintenance and hosting, he or she will require warranties from the client regarding the legality of the content provided to the developer.

Exclusions from Liability

Generally, liability exclusions are required to protect service providers from unlimited liability. Limitations on liability to the contract’s value are unlikely to be effective in the majority of cases, unless the parties’ bargaining power is equal and the terms have been negotiated (as opposed to being standard). We would recommend that a more effective limitation be linked to the level of insurance coverage available, but it is critical that the web developer confirms that they have that level of coverage – it is frequently overlooked that insurance coverage for a fixed sum may refer to the annual total of claims made, rather than the amount covered per claim. If insurance is not per claim, the agreed-upon level of liability must be reduced to account for the possibility of more than one claim in a given year. Additionally, it may be possible to restrict the time period for filing claims (e.g. one or two years).

From the developer’s perspective, it is critical that exclusions are reasonable; otherwise, they will be eliminated entirely under section 3 of the Unfair Contract Terms Act 1977, leaving no effective limit in place.

Additionally, any exclusion of consequential loss will not be tolerated; while this is common in American contracts, it is not acceptable in general under English law.

Rights Morales

The developer and client must decide whether to grant the developer the right to be recognized for his or her work on the website. If rights are transferred to the client, the developer may be content with having credit on the website at that point; however, if the website is later developed in a way that could jeopardize the developer’s reputation, the developer may wish to reserve the right to insist on the removal of their name and/or logo from the website.

Design Decisions That Are Subjective

Typically, a designer is chosen based on his or her portfolio. By instructing the designer, the client is taking a leap of faith in their ability to create something they will find attractive. Typically, the designer will be tasked with the responsibility of developing a look and feel appropriate for the client. However, given the time involved, it may be appropriate to limit the number of options available to a client (typically three) and to require the client to select one of these. At first glance, this may appear unappealing to a buyer of these services, but the buyer can be unreasonable and continually demand wholesale re-design at the designer’s expense. The developer may be required to agree to more generous provisions depending on the bargaining position of the parties, but should ideally limit its exposure in this area.

As previously stated, this article focuses on a few key points and does not attempt to cover all of the topics that should be discussed during the course of negotiating a web development agreement. It will, however, contribute to the establishment of a balanced relationship between the parties and reduce the likelihood of a costly dispute if these issues are addressed sooner rather than later.

69 thoughts on “Important Points to Consider When Entering into Web Site Development Agreements”

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