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Mark Grossman

Web Site Development Agreements

11 April 2002

It's a nightmare scenario. You're in charge of your company's major Web site redesign project and the site sucks. Even your mother hates it. As you consider where to mail your resume, you might want to consider what you'd do differently next time.

Tech projects fail for many complex reasons. I know. I've litigated those fiascoes.

One recurring theme in these situations is a communication failure. It's easy to have this happen when you have techies, businesspeople, bean counters and lawyers in one room trying to pretend they speak the same language. They don't. And they have differing perspectives and priorities.

Techies understand what they can build. Businesspeople know what they want for their customers. Bean counters want it to be close to free, and the lawyers--what exactly is it that we do and why are we in the room anyway?

I've asked that question many times when I've lectured. The answers I get make it clear that people love lawyers.

One of the common printable answers is "so that we can write a contract that will let you sue the other side if they don't do what they said they would do." While that's true, it's like saying you build a jet so that you can play with the ejection seat.

The lawyer is there to foster communication. You write a good contract not to create something that you can use in a lawsuit. You write it to prevent litigation.

Using a Web site development agreement as an example, you must insure that your agreement clearly defines things like who will do what, when, how, how much it will cost and who will own whatever it is that you create. Few form contracts prepared by those in the Web development business even come close to meeting this threshold standard.

Having a clear contract is not better for one side than the other. It's good business for everyone. I say this as someone who has represented both developers and those who buy services from developers.

One area that often raises red flags is the issue of who owns the intellectual property (IP) in the completed Web site. The buyer's perspective is that "we paid for it" and therefore "we own it." The seller's view is that they have many reusable things built into your site and the buyer can't own those things.

This is a problematic area where each side is partially right. As a buyer, you shouldn't generally expect to walk away owning everything.

It's rarely framed as a price issue, but the negotiation is often facilitated if it is. A smart developer doesn't say, "You can't own the copyright to that code." Rather, she says, you can own it, but since I can't reuse it, you'll have to pay me substantially more for it.

Buyers of Web development services should consider what it is they really need to own versus what it is that they need a license to use. They may need to own the look and feel, the graphics, any secret sauce that gives them a distinct advantage over their competitors, and arguably other elements of the site.

By the way, the rule of thumb is that to the extent that your agreement is silent on who owns the IP, the developer owns it. That's a counter-intuitive answer since the buyer paid for it, but it's the type of mistake that people easily make in tech contracting.

Another area you should consider focusing your negotiating efforts is that "standard" limitation of liability. Most Web site development agreements will have a clause which, when reduced to its essence, says something like, "No matter what we do and no matter how bad it is, we owe you very little money and you owe us your first-born."

It's interesting to note that these types of clauses have become the "norm (except for the first born part)," but that doesn't mean that there isn't room for negotiation.

For example, if the clause limits you to a refund of what you paid, you might ask that the limit of liability be increased to the total amount that you will pay during the entire life of the contract.

Imagine making a small first payment of $100,000 on a much larger contract, watching your developer massively screw-up the project, losing significant business due to the screw-ups, and then finding out that all you get for "damages" is a refund. It's not right and you should push for more.

You should also ask to exclude liability to third parties from the limitations of liability clause. If you don't and you're sued because the developer created a Web site for you that infringed somebody's copyright, you may have no effective recourse against your developer.

Last, but not least, and one people don't usually ask for and should, is that the limitations of liability should be completely reciprocal. What's good for them is good for you. Why should the developer have a limit of liability and not you? The answer is that you should have one too.

Web site development contracts are complex and specialized contracts. Don't dabble here. If you don't have experience in doing these deals, then find yourself some experienced and competent help.

Web Site Development Agreements is republished from
Mark Grossman
Mark Grossman