Once the price and scope of works was finalised between myself and my supplier, it was time to finalise and sign the contract.

This process generally involves lawyers and long documents and much to-ing and fro-ing, but we are a small company, and my supplier is as well. There were no lawyers involved on my side, and the contract that the supplier proposed was only 3 pages long. However, we were able to pool together other contract and non-disclosure agreement templates from other software development projects we had done in the past, and just decided to use common sense in compiling a reasonable contract. We realised early on that with our budget, and the suppliers Eastern European location, the likelihood of us ever mounting a legal challenge on any point, and of a resolution ever being achieved through legal means, was negligible. The costs of such a process were prohibitive, and the discrepancies between the legal systems in both countries was too difficult to contemplate.

So, we decided to trust our instincts. We had spent a lot of time talking to the supplier, and had built a trust there. In the end, we set-up the contract to be simple, fair, and workable. These were the main points we sought to cover:

  • what happens if we want to end the relationship? We said either party should give 2 weeks written notice.
  • when would the supplier be paid? We broke it down by milestones. 20% upfront, 20% when the core engine and main features were fully functional, 20% when the features are fully finished and the web application is default-free, and the final 40% when the application is launched and the client is fully satisfied
  • who owns the intellectual capital? We wanted to be sure that in the event that the supplier did not work out, that we could take all the code they had worked on and give it to another development house to complete. We would then pay the supplier pro-rata for what they had achieved to that point.
  • how do we make sure it stays confidential? We inserted fairly standard non-disclosure agreement points, but kept it quite simple. We’ve seen NDAs that were novella like in length, our equivalent was brought down to 3 bullet point.

In the end, we thought even though there is little to protect us if the supplier stole our idea or didn’t do the work they had agreed, the agreement was such that we were not at a financial loss at any stage. The supplier strangely (and fabulously) offered a bug-free system prior to full payment of fees, which is quite remarkable, having worked on web software projects in the past and know that a bug-free system is a rare beast. The distribution of payments also made us feel protected: a majority of the payment would not be made until the web application was almost fully complete. We felt as protected as we could be, so we decided to take the plunge.

We then signed the contract, faxed it to the supplier, who signed and faxed it back. All good. Work began.

A few weeks after, I realised I didn’t have an invoice for the first payment of 20% I had transferred over. On request, the supplier duly provided one, but commented that I had sent over insufficient funds, that 20% of the agreed amount was more than I had sent. I realised with a thud of my heart that the supplier was quoting the price prior to the final 10% discount he had agreed to. “That isn’t right!” I said to myself, and went to find the copy of the signed contract. To my absolute horror, I saw we had written this in the contract: “BUYER shall pay PROVIDER the amount of $xxxx”. The ‘xxxx’ is not my insertion now, that was what the contract actually said!!! I was appalled. How on earth did all parties miss the critical element of price in the contract!

I then started to panic. What if the supplier said this higher price was what we agreed to? Would I be further out of pocket? I dived into my saved emails, desperate to find some sort of written evidence of our agreement, and with a sense of belated embarrassment, noted that we had not documented even via email the agreed discount. I then recalled we had made that final agreement over a phone call, so there was no record of the reduced price. What a great entrepreneur I am: I had fallen into my first awful pit.

Luckily, my supplier is a gem. When I reminded him (via email this time!) of our conversation and the reduced price we had agreed to, he good humoredly recalled it, and we laughed at ourselves for our foolishness. This fault was quickly remedied, and a new version of the contract updated and co-signed.

So, a valuable lesson was learnt here. Attention to detail. Get someone to read over something as critical as a contract to make sure you have not missed something important due to familiarity and habit. And make sure you have utmost trust and faith in your chosen supplier, as when it comes down to it, its all about relationships, not contracts.