Software development NDA

The article is a part of Code Inspiration’s software development outsourcing Knowledge Base.

Signing an NDA is a step in the process of interaction between a software development company and a potential client. Signing NDA usually takes place between an initial software development request and an introductory call. Let’s discuss what is an NDA and why a software development company and a client sign this document.

We will not provide you with a ready software development outsourcing NDA, but will do our best to explain its purpose and integral points.

What is NDA

NDA stands for Non Disclosure Agreement – a special type of agreement to agree on how parties will operate with some secret information.

Software development outsourcing NDA, basic idea

Being an official document, a Non Disclosure agreement ensures that when a person shares some proprietary information (be it ideas, know-hows, business plans, marketing information etc.) with another person(s), they will keep it a secret. And regarding software development outsourcing, a non-disclosure agreement is usually signed between a client (a company owner) and an outsourcing company before they enter into a business relationship and start to discuss some potential cooperation.

Parties to a software development NDA

Well, any Non Disclosure Agreement proclaims:

  • Disclosing party
  • Receiving party

Disclosing party is an organization(s) or an individual(s) who shares some confidential information. Accordingly, the receiving party is someone who gets some confidential information

So, regarding software development outsourcing, the disclosing party is a potential client, who shares some information about business, planned project etc. And a software development company is a receiving party – i.e. party that gets information from a client to examine and understand what software should be developed. 

NDA in software development outsourcing. Integral points

Let’s have a look at what exactly should any NDA contain:

  1. Place of conclusion of NDA – a city and a country.
  2. Date of signing an NDA.
  3. Disclosing party – official company’s name or full individual’s name, together with legal address or individual’s address.
  4. Receiving party – same: official company’s name or full individual’s name, together with legal address or individual’s address.
  5. Confidential information section. This section explains what exact information is a subject of the software development NDA, what information both parties agree to consider as confidential. This section might describe both general descriptions of “any information related to potential business transactions and operations”, or enumeration of what confidential information includes regarding the given software development project. What is important in this section: disclosure of any information means the fact that a disclosing party reports something, no matter in what form, to a receiving party. Thus, in case some information becomes available to a receiving party from another source than the very disclosing party, such information is not considered to be confidential. 
  6. One more section describes obligations of parties. This section more affects the responsibilities of a receiving party. Usually, receiving party, according to a software development NDA is obliged:
    1. Not to disclose received confidential information to any other party.
    2. To take measures for the safety of received confidential data.
    3. To share the received confidential information only with employees, whom a receiving party has concluded internal NDAs only. 
    4. To stop using and return the confidential information immediately after termination of the NDA, or after receiving a written notice with such a claim of a disclosing party. 
  7. Another aspect proclaims the term of the software development NDA. Usually, parties agree on a 2 or 3 years’ term. Additionally, parties might agree that the mentioned term will be applied after the completion of the project and not from the date of signing the NDA.
  8. The next section is, actually, optional: it pays attention to the obligation of a receiving party to apply to the received confidential information the same degree of care as it is a receiving party’s own information. 
  9. One more aspect of a software development NDA is usually called No agency. It says that neither of the Parties becomes an official representative of another party, and no one is obliged or expected as a joint venture or a partnership with another party. This section also declares that signing an NDA doesn’t mean any further obligation between parties to sign any contract, enter into some business relations.
  10. Consequences of breaching the NDA. An NDA might proclaim some sanctions in case the receiving party fails to execute the provisions of the NDA. This is applied mostly when parties plan to realize some complex long-term project and its business success depends heavily on keeping some information a secret. So, in this case, parties agree on some fixed compensation(s) to a disclosing party. However, this doesn’t mean that a statement “in case the Receiving party fails to fulfill the terms of the NDA, the Disclosing party will get a compensation in the amount equal to X US dollars” – the parties, if they agree on some compensation, should also explain what the compensation amount is based on and indicate: 
    1. Disclosure of what exact information will mean that the receiving party is obliged to pay the compensation.
    2. What disclosure of information will mean, what actions/inaction of the receiving party will lead to compensation.
  11. The last section of a software development NDA is the signature of the parties. Usually it contains names of companies, titles of authorized persons, their full names, and, of course, signatures. 

Summing up

When a potential client addresses a software development company with some development request and asks for an NDA, a company will most likely propose a ready template. Surely, a client might also ask to sign his version of the NDA, and in this case the software development company will revise it and sign. 

In practice, there are also cases when parties somehow skip the step of signing an NDA. In this case, parties can add one more section to a software development agreement, indicating an obligation of an executor/contractor – to keep confidential information regarding the client’s project a secret.

Anyway, software development companies usually cherish their reputation that has been earned over the years and do their best to work with confidential information properly.

The article is a part of Code Inspiration’s software development outsourcing Knowledge Base.