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Considerations for Drafting Agile Software Development Contracts



In the fast-paced world of software development, the Agile framework is a game-changer. Its iterative and collaborative approach allows teams to respond to changing requirements and deliver high-quality software. However, harnessing the power of Agile requires careful planning, and one crucial aspect is the legal contract that governs the development process. Drafting a contract for Agile software development poses unique challenges and opportunities. In this blog post, we will explore the essential factors to consider when drafting a legal contract for software development using the Agile framework.

Clearly Define Scope and Objectives

A well-defined scope is fundamental to the success of any software development project, Agile or otherwise. This is quite obvious, because how do you create something for a client without defining exactly that that thing involves? In the context of Agile software development, scope definition involves creating a clear backlog of features that the development team will work on during each iteration. The contract must clearly outline the initial scope of work and specify how the project will manage changes and additions. It’s essential to strike a balance between flexibility and stability, ensuring that the contract provides room for evolving requirements while also establishing a baseline for the project’s objectives. This is especially important if you consider that software development is an inherently complex endeavour, and things don’t always work as expected the first time the code is compiled.

Iteration and Milestone Planning

Agile projects are divided into iterations (often called “sprints”), typically two to four weeks long. Each iteration aims to deliver a potentially shippable product increment. In your contract, define the duration and frequency of these iterations, as well as the expected deliverables and milestones for each. This ensures that both parties have a shared understanding of what to expect at the end of each iteration, which is critical for project transparency and accountability. You should also define what happens where the deliverables or milestones are not achieved, and ensure the client is aware that these may be added into a backlog for further sprints.

Roles and Responsibilities

Clearly delineate the roles and responsibilities of all parties involved in the project. This includes not only the client and development team but also any other stakeholders, such as product owners, Scrum Masters, and quality-assurance teams. Define their authority, decision-making powers, and communication channels. This helps prevent confusion and conflicts down the road and promotes efficient collaboration, not only internally, but with the client as well.

Change Management

Agile embraces change, acknowledging that requirements may evolve as the project progresses. You should detail how you will identify, assess, and integrate changes into the project in your contract. Consider establishing a change control board or a similar mechanism to review and prioritise changes, ensuring that you align them with project goals and implement them smoothly.

Payment and Invoicing

Payment terms in Agile contracts often differ from traditional fixed-price contracts. Instead of paying for the entire project upfront or in predefined phases, Agile contracts typically involve periodic payments based on the completed work. You can opt for various payment models, such as time and materials, cost-plus-fixed-fee, or a hybrid approach. Clearly specify payment terms, including how and when invoices will be submitted and processed, as well as the criteria for accepting deliverables.

Intellectual Property and Ownership

Determine the ownership and rights associated with the software and its components. While the development team creates the code, the client usually retains ownership of the final product. However, they Copyright Act 98 of 1978 (as amended) allows the parties to deviate from this in terms of a written contract, so it’s essential to clarify the rights of both parties regarding the use, modification, and distribution of the software. Also crucial to take into account in this regard is the inclusion of any third-party libraries or tools into the project, and how those are dealt with from a legal perspective.

Quality Assurance and Testing

Agile places a strong emphasis on quality, with continuous testing and validation throughout the development process. Your contract should outline the quality assurance and testing procedures, including the types of testing to be conducted, the acceptance criteria, and how defects and issues will be addressed. This ensures that the software meets the desired quality standards. This can also extend to the provision of ongoing support or maintenance in relation to the software.

Data Security and Privacy

If your software involves handling sensitive data or personal information, compliance with data security and privacy regulations is paramount. Define the security measures and data protection requirements that the development team must adhere to. Ensure that the contract includes clauses addressing data handling, encryption, compliance with relevant laws (e.g., POPIA or the GDPR), and any necessary certifications.

Termination and Exit Strategy

While both parties enter into the contract with the best intentions, it’s essential to plan for contingencies, including project termination. Define the conditions under which either party can terminate the contract and the process for transitioning the project to another team if necessary. A well-structured exit strategy minimises legal disputes and ensures a smooth transition in case the project doesn’t proceed as planned. In this regard, it’s very important to determine what will happen to the intellectual property created if the client party terminates the agreement before completing the development process.

Dispute Resolution

Despite everyone’s best efforts, conflicts can arise during a software development project. To address this, include a dispute resolution mechanism in your contract. You can opt for mediation, arbitration, or litigation, depending on your preferences and the applicable laws. Clearly outline the steps and procedures for resolving disputes, allowing both parties to seek a fair resolution. In this regard, it is also a good tactic to allow the parties to negotiate before considering mediation, arbitration, or litigation. This provides the potential for resolution without having to go through expensive, protracted dispute resolution procedures.


Drafting a legal contract for software development within the Agile framework requires a delicate balance between flexibility and control. It’s about creating a document that empowers collaboration, adapts to changing requirements, and ensures that both parties are on the same page throughout the project’s lifecycle. By considering the factors discussed in this blog post and tailoring them to your specific needs, you can pave the way for a successful Agile software development project while minimising legal risks and uncertainties. Remember, a well-crafted contract sets the foundation for a productive and harmonious relationship. If you need help to draft up an agreement of this nature, or if you would like to chat to a lawyer about how best to incorporate this into your current framework, don’t hesitate to get in touch with Legalese!


– Written by Kyle Freitag


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