If the developer transfers ownership of the software to the client, the client may end up owning this background technology as well. Developers should avoid this by making sure the development agreement provides that the developer retains all ownership rights in this material. But, in this event, the agreement should give the client a nonexclusive license to use the background technology that the developer includes in the software.

Warranty Provisions

Generally, a warranty is a promise from the seller that the product will do what it is supposed to do for a specific or reasonable time period, and that the seller will fix or replace it if it does not. Warranty provisions are included in most custom software development contracts. However, since this is an area of active bargaining between the developer and client, these provisions vary widely.

Warranty of software performance. Warranties of software performance are typical in many contracts. In this warranty, the developer promises that the software will work the way the developer said it would and will fix it free of charge if it doesn't. Such warranties typically last from 90 days to one year after the software is delivered.

Other warranties. Others include warranties of:

• title -- that the client will get good title to the software, and
• noninfringement -- that the software will not infringe on anyone's copyright, trade secret, patent, or other intellectual property rights.

Dispute Resolution

The single most important provision in any development contract is the procedure for resolving disputes. It is often advantageous to settle disputes without going to court -- which can be extremeley expensive. You can do this through arbitration or mediation.

Arbitration. In arbitration, a person or panel decides the merits of the issues and renders a decision, which may or may not be binding, depending on the arbitration agreement. Many commercial contracts today include a binding arbitration provision. Be aware that, by agreeing to binding arbitration, you're basically giving up your right to go to court to enforce the contract.

Mediation. Mediation is less formal and cheaper than arbitration and, by its nature, is never binding. Typically, the mediator either sits the parties down together and tries to provide an objective view of their dispute or shuttles between the two sides as a cool conduit of what may be red-hot opinions.