[IT Litigation] What is Software Appraisal? Differences between Completion Appraisal vs. Existing Software Appraisal and Selection Strategies

It is very common for startups or IT companies to outsource software development. However, it is also common to see conflicts between the client and the developer regarding the payment of service fees when the results do not meet expectations at the time of completion, or when the results do not meet expectations. In particular, whether ‘development has been completed’ is a direct criterion for judging whether the service contract has been fulfilled, so disagreements between the parties regarding the quality of development can lead to legal disputes.

When there is a dispute between the parties to a contract regarding the quality of development, the most ideal solution is to resolve it through consultation between the parties, but in reality, consultation often does not proceed smoothly, and eventually a third party, such as a court or arbitration institution, must make a judgment. The procedure that serves as an important basis for judging the quality of development is called ‘software assessment.’

- What is software assessment?

Software assessment is a procedure for objectively evaluating whether the software developed under a service contract has been completed in accordance with the contractual requirements from a technical perspective. The results of the assessment in software service contract disputes are not just reference materials but act as a key criterion for determining whether payment is due and the amount of the payment.
In particular, because it is often difficult to externally confirm the completion or development progress of intangible assets such as software, it is very important to verify the actual status through an assessment.

- Definition and judging criteria for quality assessment vs. completed work assessment

Software assessment can be broadly divided into the following two methods.

1. Quality Assessment

• This is an assessment to determine whether the software that has been developed meets the contractual requirements.
• It is evaluated based on comprehensive factors such as function implementation, UI/UX, performance, and stability.
• It often assumes that the software has been completed, so it is usually performed when the developer claims to have completed the work.

2. Completed Work Assessment

• This method evaluates how much work has been done so far while the software is still incomplete.
• It calculates the progress rate (completed work rate) based on deliverables and the amount of development resources invested.
•  It is used for partial settlement when a project is terminated prematurely or delayed.

- How to choose the appropriate assessment method based on the situation: quality assessment VS completed work assessment

Software assessment is not just a technical evaluation; it’s a strategic means to resolve legal disputes. The outcome of the lawsuit can be affected by which assessment method is chosen.

For example, if a client applies for a ‘completed work assessment’ when the developer claims that the project is completely finished, the premise of the assessment will be inconsistent, and the reliability and validity of the assessment results will be reduced. Conversely, if the developer applies for a ‘quality assessment’ when the software is still incomplete, the assessment scope for the assessor will be limited, leading to results that are disadvantageous to the developer.

Therefore, when applying for a software assessment, the following factors should be considered comprehensively. First, the direction of the parties’ arguments should be clearly understood. That is, whether the developer claims that the software has already been completed or whether the client believes that some functions are incomplete, the appropriate assessment method will vary. Second, the actual development status of the software should be checked. The objective assessment of the current level of implementation of functions or deliverables allows a judgment of whether development is complete. Finally, the contract should be reviewed. A thorough review of how deliverables are defined in the contract at each development stage and how payment is set out will determine whether the assessment method is consistent with the contractual conditions.

- IT Lawyer’s TIP: Choosing an assessment method is also a legal strategy

Due to its nature, the software development process is often complex, from initial planning to completion, and the expectations of each stakeholder often differ. Considering these characteristics, it is important to objectively verify the facts through assessment to resolve disputes arising from software development smoothly. The key is not just to apply for an assessment but to select the appropriate assessment direction. Applying for a completed work assessment when a quality assessment is needed or, conversely, insisting on a quality assessment when a completed work assessment is appropriate can cause a legitimate claim to work against you.

Law firm Veat has extensive experience in providing software service contract advisory services and dispute resolution for startups and IT companies. We provide specialized legal advice, including drafting and reviewing software development contracts, reviewing legal responses to software development contract disputes, litigation for software completion assessments and completed work assessments, advice on assessment results, and representation in mediation proceedings. In particular, we have many IT specialist lawyers certified by the Korea Bar Association, lawyers with backgrounds as developers, and lawyers with engineering backgrounds, and we provide efficient and professional legal advice based on in-depth understanding of IT and software.

If you would like to discuss the assessment process and direction with an IT specialist lawyer regarding disputes related to software service contracts, please feel free to contact Law firm Veat.

Thank you.
Law firm Veat