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How to avoid costly mistakes when hiring a contract developer

By Gaida Zirkelbach

Zirkelbach_gAsk any technology or Internet entrepreneur and they’ll tell you that working with good developers/programmers is crucial to the success of their business.  After all, developers make a business plan come to life. Any seasoned entrepreneur will also tell you that avoiding mistakes when contracting with a developer is almost as important as the quality of the developer’s work.  These legal mistakes can, in many cases, make or break a business. 

A well-known example of these costly legal mistakes is the dispute between Mark Zuckerberg, programming prodigy and CEO of Facebook, and his former classmates, who claimed that Zuckerberg stole the idea for Facebook from them.  It took years of lawsuits, millions in legal fees and a $65 million dollar settlement to resolve their dispute.  Clearly, in hindsight, when compared to the time, effort, money and sleepless nights wasted in a legal dispute, investing a little time, effort and funds into a quality development agreement is a no brainer.  Regrettably, in the rush and often bootstrapping nature of getting an idea off the ground, a quality development agreement is often either overlooked or purposely suppressed by naiveté and wishful thinking.  

Whenever I work with an entrepreneur looking to contract with a developer, I make sure that we all agree on the answers to a few simple, but crucial questions.  To avoid problems down the road, a quality development agreement will include the answers to these questions, and pass the “sixth grader test.”  In other words, a sixth grader should be able to read the agreement and answer these questions: 

  1. 1.       Who owns what?  In most cases, the entrepreneur should clearly have ownership over deliverables created.  Often times, however, developers want to retain ownership in certain basic “tools” or “building blocks” used.  Because of this, it can be tricky to clearly state what aspects of deliverables are owned by the entrepreneur and what aspects are retained by the developer.
  • 2.       What is included? It is important to clearly state what the developer is required to deliver and what responsibilities, if any, the entrepreneur has.  In addition, the entrepreneur should understand whether open source or other third-party components will be used, as these could affect intellectual property rights and the value of an enterprise.  
  • 3.       Who is doing the work? An entrepreneur will want to know whether the developer is using employees or subcontractors to perform work and may need to ensure that those individuals are also subject to important provisions regarding ownership of deliverables and confidentiality.
  • 4.       What are the expected milestones, due dates and repercussions?  A recurring complaint I hear from entrepreneurs is development delays.  The payment structure, as well as including clear milestones, due dates and penalties, can help keep a project on track.
  • 5.       What is confidential? In many situations, maintaining confidentiality of the entrepreneur’s ideas and other business information is as important as owning deliverables.
  • The next time you plan to engage a developer, think about calling your lawyer and a sixth grader, and working through these questions.

    Gaida Zirkelbach is a business, technology and Internet attorney with the law firm Gunster.  She provides general strategic advice, drafts and negotiates a wide range of commercial agreements, and has vast experience working with companies in the technology and digital media fields.