Troutman Sanders LLP: Tips for Negotiating Your Website Development Contract

Troutman Sanders LLP: Tips for Negotiating Your Website Development Contract

By Troutman Sanders Tobacco Law Team

Often, the most significant impression a customer has of a company comes from the company's website.  An attractive, well-organized and easy to use website is crucial in today's "click and buy" economy.  A company's website also can represent a large investment, especially for a small manufacturer or retailer.

The process of creating a website, however, can be time-consuming and filled with unexpected hurdles.  For a website development project to be a success, it is important to negotiate an agreement that clearly sets forth the parties' responsibilities and assumptions and addresses how to deal with problems as they arise.  Below are a few common tips to help guide you through the website development process:

  • Use a Competitive Bid Process - This allows a company to set the terms of the negotiation by including a draft agreement in its request for bids and helps identify vendors who are willing to agree to your terms.
  • Consider the Scope of Services You Need - Does your company want a custom web site or are you looking for a website that uses a standard template?  Does your company have the capability to maintain its web presence or will it contract for web hosting, maintenance and support?  The answers to the questions will dictate your approach to a website development agreement.  The scope of services provided, including deliverables, milestones and customer requirements must be carefully defined in an agreement because those definitions will be the measuring stick for the parties' performance.
  • Consider the Size of the Website Developer - A large developer may insist on its contractual terms and conditions, which can be one-sided.  A small developer, on the other hand, may lack the skillset for a complex job and may be unable to complete a project if any key employees leave.
  • Consider the Fee Structure - Typically, website development agreements are either based on the time spent at agreed billing rates plus out of pocket expenses (time and materials contracts) or fixed fee contracts.  Regardless of the fee structure, a website owner should be sure to condition payments on reaching certain milestones and include a hold-back of a portion of the fee until final acceptance.
  • Ensure that You Own Your Website's Intellectual Property - While a developer may properly insist on retaining ownership of some of the software code used to create your website, a company should ensure that it has a broad license to use all such software as necessary to operation of its website and insist on ownership of the unique viewable aspects of the website and any custom software code developed uniquely for that website.  Include a confidentiality provision in the agreement to protect any confidential information the developer is provided during the course of the project.
  • Carefully Review Provisions for Testing and Completion - A website owner should insist that a website development agreement include the timeframes for testing to occur and the consequences for failure to meet agreed specifications, including monetary penalties or termination for delay.  One way to address deadlines is to divide a project into phases, each with their own deliverables and milestones. 
  • Make Sure to Obtain All Documentation Created for the Website - If the developer is not providing training or ongoing maintenance once the website is complete, make sure that the developer is required to provide all relevant documentation, including technical specifications, functionality and capabilities as well as system architecture and design information.
  • Establish Procedures to Oversee Contract Performance - It is important for a website owner to appoint or retain a reliable project manager to keep the project on track and to deal with issues on a timely basis.  To maintain control over contract performance, a website owner should institute a clear change order process in the agreement. 
  • Carefully Review the Representations and Warranties - A website owner should carefully review the developer's representations and warranties to ensure that the developer promises to deliver a website that meets the contract specifications and warrants that the developer will correct defects found in the site after the contract is complete.  A developer should also warrant that the website does not infringe the intellectual property rights of any third parties and should agree to indemnify the website owner for any intellectual property claims.

These are only some of the many issues that arise in negotiating a website development agreement.  The keys to successful completion of a website development project is to draft specific contractual provisions that define the parties' responsibilities and that provide a process for raising and addressing issues as they occur.

Contributors: Dabney Carr and Robert Angle, Troutman Sanders Intellectual Property Practice Group

For questions and/or comments, please contact Bryan Haynes, Troutman Sanders Tobacco Law Team Co-Leader, at 804.697.1420 or by email.