Why this deserves more than a template pulled off the internet

A software development agreement is not just a contract that says a developer will build something and you will pay for it. It is the document that determines who owns the code, what happens if it does not work, who is liable if it breaches someone else's IP, and what you are entitled to if the relationship falls apart halfway through. Getting the basics wrong here creates problems that surface months or years later, often at the worst possible time, such as during a funding round or an acquisition.

Ownership starts with a default you probably do not want

Software code is protected as a literary work under the Copyright Act 1968 (Cth). Where a developer works for you as an employee, copyright in what they create during their employment belongs to you automatically. But most startups do not employ their developers. They engage them as contractors or through an agency, and in that case, copyright vests in the developer by default, not in the startup that commissioned and paid for the work.

This is the single most common mistake founders make. Paying for the work does not transfer ownership. The agreement has to say so explicitly, assigning IP in the code to your company, and that assignment needs to be in writing to be valid.

If your team includes multiple contributors working together on the same codebase, get clarity early on who can deal with the jointly developed IP and under what conditions. A single co-author cannot exploit, licence, or sell jointly owned copyright without the others agreeing, which can become unworkable if it is left unresolved until a dispute forces the question.

Define the scope properly, or expect disputes over what "done" means

Every software development agreement needs three things sitting underneath it: a business requirements document describing what the software needs to achieve, a technical specification describing how it will be built, and a project timetable. These documents should be incorporated into the contract itself, with a clear rule for what happens if they conflict with each other.

Acceptance testing is where most disputes actually happen. The point of acceptance testing is to prove, against agreed criteria, that the software does what was promised. Developers want acceptance defined as early and as simply as possible, often tied to delivery, because acceptance is usually also a payment milestone. You want the opposite: enough time to properly test before you are deemed to have accepted anything, because once acceptance happens, your remedies if something later turns out to be broken are usually limited to a damages claim, not a right to reject the software outright.

Build in a change management process too. Scope creep during development is one of the most common sources of friction between founders and developers, and a documented process for how changes get proposed, costed, and approved removes a lot of that friction before it starts.

Choose a payment structure that matches the actual risk

There are two common models. A fixed price gives you cost certainty and puts the risk of delays or unexpected complexity on the developer, but developers often price in a buffer for that risk, so you may pay more than you would under a different structure. Time and materials shifts the risk back to you: you pay for actual hours worked, which suits projects where scope is genuinely hard to pin down upfront, but gives you no certainty on the final bill and can reward slow work rather than efficient work.

Whichever you choose, stage payments against milestones rather than paying everything upfront or everything on completion, and be explicit about what expenses are reimbursable and what approval is needed before they are incurred. For longer engagements, also think about how fees might need to adjust over time.

Privacy obligations do not wait until launch

If the software will handle personal information, your obligations under the Privacy Act 1988 (Cth) apply from the design stage, not just once it is live. Australian Privacy Principle 11.1 requires you to take reasonable steps to protect personal information from misuse, loss, and unauthorised access, and that obligation extends to how the software is built, not only how it is eventually used.

Before development starts, it is worth running a privacy impact assessment: mapping how personal information will flow through the system, what the risks are, and how those risks will be reduced. This should shape the brief you give the developer, and it is worth revisiting as the build progresses rather than treating it as a one-off exercise. The agreement should also spell out who is responsible for identifying and responding to a data breach if one occurs.

Confidentiality still needs its own clause

Even with an NDA already in place before the engagement started, the development agreement itself should carry its own confidentiality provisions, defined broadly enough to cover both parties' sensitive information, not just yours. If you will need to share information with an outsourced provider or another third party during the project, make sure the agreement allows for that rather than assuming it is covered by implication.

Warranties and indemnities

You want warranties confirming the developer actually has the rights to assign and/or license you the software, and warranties around how it will perform. Developers will typically try to narrow these, tying performance warranties tightly to the technical specification rather than leaving them open-ended.

Separately, seek an indemnity protecting you if the software turns out to infringe someone else's IP. Other common areas covered by indemnities include breach of confidentiality, data loss or corruption, and breach of privacy obligations.

Subcontractors and open-source components

Ask directly whether the developer intends to use subcontractors, and under what conditions. At minimum, the developer should remain responsible for anything a subcontractor does, and should be contractually required to secure a proper written IP assignment from any subcontractor they use, since your rights in the final product are only as strong as the rights the developer itself actually holds.

Open-source components deserve their own line of questioning. Some open-source licences require that modifications be made publicly available, which can directly conflict with wanting to keep your product proprietary. Ask what open-source components are being used and under what licence terms before development starts, not after you discover it during due diligence for a raise or a sale.

Plan the exit before you need one

Address termination properly before you sign, not after a dispute forces the question. Set out what circumstances allow either side to terminate, what notice is required, and whether you retain a right to keep using the software for a transition period afterward. If the software will sit at the core of your operations, consider whether the developer's own right to terminate should be limited to serious breaches only, given how disruptive losing access could be. Also address whether the developer is obliged to help you migrate to a new provider if the relationship ends, including what that assistance costs.

FAQ

If I paid for the code, don't I automatically own it? Not if the developer was engaged as a contractor rather than an employee. Copyright vests in the developer by default unless the agreement explicitly assigns it to you in writing.

Does this apply to an in-house developer I employ directly? Generally, no. IP created by an employee during their employment usually belongs to the employer automatically under the Copyright Act. The assignment issue is specific to contractors, agencies, and freelancers.

What is the difference between this agreement and an NDA? An NDA protects information disclosed before or during the engagement. A software development agreement covers ownership of what actually gets built, along with scope, payment, liability, and what happens if things go wrong. Most founders need both.

This article is general information only and does not constitute legal advice. Get your software development agreement reviewed before a developer starts building.

Related reading: Why Every Founder Needs an NDA Template Ready Before Talking to Developers