[IT Litigation] How should a software development contract be written? Setting milestones to reduce disputes.

As digital transformation accelerates, many companies are actively pursuing the development of in-house systems or the adoption of customized solutions to secure competitiveness. Consequently, many companies are entering into software service contracts, and disputes related to these contracts are also occurring.

In particular, setting ‘development milestones’ goes beyond a simple schedule plan; it serves as a benchmark for contract management and the prevention of legal disputes. Therefore, a strategic approach is necessary from the contract drafting stage.

The Concept and Role of Milestones

Software development generally proceeds in stages over several months to years. The ‘milestone’ is introduced to manage this process efficiently.

A milestone refers to the key performance points that must be achieved in each development stage. For example, ▲completion date of requirements analysis, ▲confirmation date of UI design, ▲delivery date of the first beta version, ▲completion date of final testing are typical milestones.

These milestones are not merely scheduling tools but serve as a benchmark for verifying the progress of the deliverable and simultaneously as a measure for distinguishing responsibility for delays.

Importance of Milestones and Key Check Items When Entering into a Contract

In actual projects, the milestone schedule is often not followed due to the following reasons.

First, delays may occur due to the client’s fault.
A typical example is failing to provide materials on time or delays in internal decision-making leading to delayed feedback. Frequent changes to requirements are also a major cause of schedule delays.

Second, delays can also occur due to development delays on the developer’s side.
This includes cases where the developer failed to properly estimate the project schedule or encountered unexpected technical difficulties, resulting in a schedule slip.

Since there are many cases where the cause of the delay is unclear, disputes arise over responsibility for the delivery delay. To prevent these disputes, it is important to specify the details of each milestone in the contract phase.

It is advisable to ▲define specific completion criteria for each milestone ▲and stipulate the client’s cooperation obligations (material provision deadlines, feedback response deadlines, etc.).

For example, you should set quantitative and specific conditions such as ‘First development completion is considered when the login function, bulletin board registration function, and administrator page access function are all implemented and the test results pass more than 90%.’

It is also possible to include a process such as ‘If a delay occurs, the developer shall notify in writing within 3 business days, and the client shall respond with an opinion within 5 business days after receiving the notice.’ to prepare for issues that may arise during development.

Importance of Documenting Development History and Securing Evidence

It is important to secure systematic records and evidence of the development process. If a project is delayed, each party is likely to claim that the responsibility lies with the other party.

At this time, simple claims will not be convincing, and objective evidence is essential to show who made what request, when, and what materials were delivered when.

For example, this could include email history proving that the client provided materials late, meeting minutes, or work logs, issue reports, or test result reports that the developer reported during development. These records are the most important evidence for proving fault in the event of a legal dispute.

A software service contract is the legal and technical design result that determines the success or failure of the entire project. In particular, documenting milestone settings and implementation is a core mechanism for maintaining trust between the developer and the client, and a decisive criterion for clearly distinguishing responsibility in the event of future disputes.

Law firm Veat has collaborated with numerous software development companies and IT startups, providing legal advice on projects such as startup platform development and public institution system construction.

Based on this practical experience and technical understanding, we identify issues that may arise during development and systematically incorporate them into contract drafting and dispute resolution strategies.

If you require legal advice or dispute resolution related to software contracts, please feel free to contact Law firm Veat.

Thank you.

Law firm Veat