Are there any points I should be aware of when drafting an outsourcing development agreement?

Many times, when startups request development by entrusting it to a third party through IT outsourcing contracts, the specific specifications related to the development are not detailed. In this case, there may not be sufficient agreement between the parties regarding the deliverables, which can lead to misunderstandings and disputes.

We would like to introduce one of the significant cases handled by Law Firm Veat.

A company (Plaintiff) operating a SW wholesale business, B Company (Defendant), a program development and maintenance business, entered into a maintenance and repair contract for the ‘C Program’. As a result, the Plaintiff filed a lawsuit for ‘Claim for Unpaid Maintenance Fees.’ Law Firm Veat won the judgment in favor of the Plaintiff.

This case involved a situation where the Plaintiff performed maintenance and repair work on the C Program, but the payment was overdue. The Plaintiff repeatedly requested payment from the Defendant, but the Defendant countered with a counterclaim for damages, claiming that the Defendant had not received adequate program upgrades.

Therefore, we carefully reviewed the specific details of the contract between the Plaintiff and the Defendant, with particular focus on the scope of maintenance and repair fees, especially whether it included updates or upgrades for the C Program.

Based on the contract, the written language, industry practices related to maintenance and repair work, and relevant case precedents, Law Firm Veat submitted evidence, including an email where the Defendant was informed that “costs would be incurred if the update work was included,” and successfully demonstrated that the C Program's updates were not included within the maintenance and repair scope of the contract. Focusing on “preventive maintenance and maintenance to always keep the C Program in a good state in case of malfunctions,” we were able to conclude that the Defendant’s argument was unreasonable.

Ultimately, the Seoul Central District Court accepted all of Law Firm Veat’s arguments and dismissed the Defendant’s counterclaim, ordering the Defendant to pay the Plaintiff the full amount of unpaid payment and interest.

To prevent outsourcing development disputes, it is advisable to clearly define the ‘subject matter’ in the outsourcing development contract.

If you need legal expertise in drafting outsourcing development contracts, please contact Law Firm Veat.

Thank you.

Law Firm Veat