Drafting software outsourcing contracts

Information technology is increasingly developing, leading to an increasing demand for software for technology products of businesses. Many businesses do not have enough equipment and human resources to perform software outsourcing. So creating software outsourcing contracts is extremely necessary. So, what is a software outsourcing contract? To answer customers’ questions, Viet An Law Firm presents an overview of drafting software outsourcing contracts as follows.

Legal basis

• Civil Code 2015.
• Law on Commercial 2005.
• Decree 71/2007/ND-CP guiding the Information Technology Law on the information technology industry.

What is a software outsourcing contract?

According to the regulations based on Clause 9, Article 3 of Decree 71/2007/ND-CP, a software outsourcing contract is an agreement between the parties, in which the outsourcing party will produce and provide software products and services or perform a number of steps to complete the software products and services at the request of the outsourcing party.

Distinguish between hardware outsourcing and software outsourcing

Form of the software outsourcing contract

Pursuant to the provisions of the Commercial Law 2005, software outsourcing contracts must be made in writing or in other forms with equivalent legal value.

Content of software outsourcing contract

The subject of the software outsourcing contract

The object of a software outsourcing contract is the software product (such as system software, application software, utility software, or tool software…), the name of the processed product, quality, and function of the software product. Accordingly, these software products and accompanying documents can be displayed or stored in any physical form.

Rights and obligations of the software outsourcing party

Article 544 and Article 545 of the Civil Code 2015 stipulate the obligations and rights of the software outsourcing party as follows:

Obligations of the ordering party:

• Provide raw materials and documents in accordance with the agreed quantity, quality, deadline and location to the software outsourcing party.
• Instruct the processing party to perform the contract and pay the agreed wages

Rights of the ordering party:

• Receive processed products according to the agreed quantity, quality, deadline and location.
• It is possible to unilaterally terminate the performance of the contract and request compensation for damages when the processing party seriously violates the contract.

In addition, if a software outsourcing contract belongs to commercial outsourcing, the rights and obligations will be specified in Article 181 of the Commercial Law 2005, specifically as follows:

• Deliver part or all the raw materials and processing materials according to the processing contract or deliver money to buy materials according to the agreed quantity, quality, and price.
• Receive back all processed products, leased or loaned machinery and equipment after liquidating the processing contract, unless otherwise agreed.
• Appoint experts to guide, check production techniques and check the quality of processed products as agreed in the processing contract.
• Responsible for the legality of intellectual property rights of processed goods, raw materials, materials, machinery and equipment used for processing transferred to the software outsourcing party.

Rights and obligations of the software outsourcing party

Pursuant to the Civil Code 2015, the obligations and rights of the software outsourcing party are as follows:

Obligations of the processing party:

• Preserve raw materials provided by the ordering party.
• Notify the ordering party to exchange for other materials if the materials do not meet quality standards.
• Refuse to perform processing if you know that the use of materials can create harm to society.
• Deliver the product to the ordering party in accordance with the agreed quantity, quality, deadline and location.
• Keep information about the processing process and products created confidential.
• Responsible for product quality. Except in cases where the product’s quality is not guaranteed due to the materials provided by the ordering party or due to unreasonable instructions from the ordering party.

Rights of the processing party:

• Require the ordering party to deliver raw materials according to the agreement.
• Refuse unreasonable instructions from the ordering party if you see that such instructions may reduce product quality.
• Request the outsourcing party to pay the full salary as agreed.

In addition, software outsourcing contracts are also regulated in Article 182 of the Commercial Law 2005 as follows:

• Providing part or all of the raw materials and materials for processing according to the agreement with the software outsourcing party.
• Receive remuneration and other reasonable expenses.
• In case of processing for foreign investors, the processing party is allowed to export processed products and related materials on the spot under the authorization of the ordering party. Then, the processing party will be exempt from import tax on machinery, equipment, and raw materials to carry out the processing contract.

Some keynotes when drafting outsourcing software contract

During the process of implementing a software outsourcing contract, many problems and problems may arise. Therefore, according to current law as well as to ensure the legitimate rights and interests of the parties, software outsourcing contracts need to pay attention to the following rules:

• Regulations on product completion time and product quality: the product must have clearly defined standards to ensure quality and expected completion time of the software product.
• Completion time for specific software features: The contract should specify completion time periods for each product feature to facilitate monitoring work progress.
• Payment by stages in the contract: Accordingly, it is necessary to stipulate payment terms for each stage to determine completed tasks and payments.
• Product warranty support after transfer: Accordingly, the contract will clearly state the period during which the software developer or outsourcing party supports the products they create and provide. This is to ensure trust and quality in the software construction process, creating products that work well and have few problems.
• Confidentiality clause: The confidentiality clause helps ensure exclusivity, preventing the product from being copied or information stolen.
• Compensation when damage occurs: regulations aimed at dividing risk responsibilities between the unit outsourcing the software and the unit being hired to outsource the software.
• Contract termination clause: The clause clearly states that if one party violates the contract in any case, the other party has the right to unilaterally terminate the contract.
• Resolving arising problems: It is necessary to clearly stipulate the agency with authority to resolve them when a dispute occurs.

Some questions about software outsourcing contracts

If there is a delay in software outsourcing delivery, how will it be handled?

Pursuant to the current Civil Code, there are regulations on delayed delivery as follows:

• In case the processing party is late in delivering the product, the ordering party can extend the time, at the end of that time limit the outsourcing party still has not completed the work, the outsourcing party has the right to terminate the performance of the contract and request compensation for damages.
• In case the ordering party is late in receiving the product, the processing party can deposit the product at the place of deposit and must immediately notify the ordering party and the ordering party must bear all costs arising from the transfer.

What should we do if a contract dispute occurs?

When a dispute occurs, the disputing parties need to discuss and agree to agree on the best solution, minimizing the parties’ losses. If negotiation and conciliation methods are not successful, based on the dispute resolution clause in the contract, the parties will proceed with settlement procedures to resolve the matter by commercial arbitration or court. Especially for processing contracts with foreign elements. For example, if the ordering party is a foreign company or has foreign capital… the parties can choose foreign law to govern the contract and a foreign dispute resolution agency.

Clients want to know more information about consulting on drafting software outsourcing contracts, please contact Viet An Law Firm for our best support!