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Everything You Need to Know About NDA for Software Development

Everything You Need to Know About NDA for Software Development

The exchange of information is common in a digitized and globalized world, and it's essential for collaboration between two organizations. From marketing to finance or software development, companies have to share data with strategic partners at various business stages. The data can be sensitive information like business ideas, customers' payment details, or general information like customers' names and addresses. Irrespective of the nature of data, it's crucial to protect it.

A non-disclosure agreement (NDA) ensures that when you share data with another person or organization, they will keep it a secret. NDA for software development is an agreement between the client (owner company) and the software development company (the service provider) to protect the information of the client company before they get involved in a business relationship.

This article discusses what an NDA agreement is and everything about software development NDA you should know if you are outsourcing software development to a third party.

Let's get started!

What is an NDA?

NDA stands for a non-disclosure agreement, which is an official agreement between two companies not to disclose private and confidential information. The purpose of an NDA is to prevent the partner company from disclosing or sharing critical business data with others.

NDA for software development is essential when developing a website, web application, mobile application, or any other software product, and it involves critical data. An NDA can be used by two or multiple parties involved in the business. In the case of software development specifically, an NDA restricts the use of business ideas, program code, and any information a client shares with the service provider.

Types of NDA

A non-disclosure agreement is signed by single or multiple parties that enter a business relationship. There are three types of NDAs depending on the number of companies signing the contract.

Unilateral NDA

This type of NDA is also known as a one-way NDA. Businesses use it when one party shares the information and wants the other party to protect it. NDA for software development is usually of this type as the client or owner company shares business ideas or data and wants the recipient company to protect it.

Bilateral NDA

It is also called mutual or two-way NDA. In this case, both parties share their data, and every party wants the other not to reveal critical data to any other individual or company. For example, if you run a banking business and want to develop an app for a specific purpose, you share your business ideas and other information, whereas the software development company reveals its development strategies. Both parties like to ensure the recipient does not share their information.

Multilateral NDA

When three or more companies enter a business deal, and at least one company shares information, it wants the other parties not to leak that. The company sharing information can use a multilateral NDA. This type of NDA is rare, but sometimes companies do use it.

Why should you ask for an NDA for software development?

To keep your trade secrets secure

Every company has some secrets that make its products or services unique and help the business stand out among its competitors. It can be a secret ingredient, a distinct manufacturing process, a secret marketing strategy, or a list of customers. Revealing this information can impact profitability or even ruin the business. You may need to share some of these details while building software. An NDA prevents the software development company from sharing it with its competitors.

To ensure secrecy of your project before releasing

Companies often implement new technologies in business to develop a new product or service, and they don't want their competitors to access this information. In software development, your project information can be leaked if you don't ask the service provider to sign an NDA. Keeping secrecy about your project will ensure you get the first-mover advantages.

To keep other information confidential

An NDA agreement for software development protects the code lines, technical processes, and software ideas. You may have to share your customer details, their personal, financial information, or other sensitive information, and it's important to protect them. When you sign an NDA, the recipient has to maintain the confidentiality of all the information you share.

NDA for software development - 5 things to include

Every business is unique, so their requirement for NDA is also different. Moreover, there is no single template for a non-disclosure agreement. You have to prepare according to your requirements. However, every NDA should include some information, and you can't miss that.

Specify the parties involved

An NDA should include the identity of all the parties involved in the agreement.

  • The owner of the confidential information
  • The recipient (Software service provider - can be an individual software programmer or a software development company)

The information to keep secure

You need to mention the information to be protected. If any information is already in the public domain, there is no point in stating that in the NDA. Ensure there is no ambiguity and that the signing party understands which information will not be shared.

Moreover, if the recipient party needs to share your confidential information with their business partners or agents to complete your project, ensure the NDA covers all of them.

NDA for a software development project requires everyone accessing the source code to sign the agreement. It includes developers, designers, project managers, and QA experts. Signing the contract is essential even if you hire an in-house software development team.

Duration of the agreement

The contract duration should be mentioned in the NDA. It is usually a period of 2-3 years. Sometimes it can go up to 5 years. However, the NDA may become invalid if confidential information is made public.

Parties' obligations

An NDA for software development should cover the recipient party's obligation to maintain the confidentiality of the shared data and prevent any unauthorized access. The restrictions might include:

  • Using the sensitive information only for the purposes mentioned in the agreement
  • Ensuring the people accessing the confidential information take necessary steps to protect the confidentiality of the specified information
  • Sharing the information only with the specified people who need to access it for the development purposes
  • Deleting the information from email, database, cloud, or any other digital sources where it was stored

Consequences of breaching the contract

Despite the agreement, sometimes companies break the contract. What should you do if that happens? You may face financial and other losses, and it's important to mention how to recover that. The NDA for software development is pointless unless you specify the implications of breaching the contract.

You should clearly state how much compensation you will seek if there is a contract violation. It is also important to share how any dispute should be settled (for example, through an arbitrator or going to court).

NDA for software development - Which information is confidential?

The NDA should clearly define which information is confidential. For a software development project, confidential information is defined as "any information related to project X, including the purpose of the software to be developed, the architecture, the technology, internal project structure, and team composition." Besides that, if you share other data like your customer's details or your upcoming products, then that should also be included.

Breach of agreement sometimes happens due to ambiguity. So, be very specific when you talk about data. Avoid using generalized statements like "any or all sensitive data."

Software development NDA template

Writing an NDA for software development can be time-consuming. You have to ensure there is no loophole and consider every word carefully. A single error can make a significant difference in the agreement, and the purpose of NDA can become pointless. Is there a better way to create an NDA for software development? Yes, you can find many NDA templates over the Internet; however, they may not be suitable for you. Here is a well-drafted template you can download and customize according to your requirements.

Conclusion

A software development project requires you to share confidential information about your business with an individual developer or the software development company you hire. Any data breach or misuse of the information can significantly damage your business and reputation.

Signing an NDA is the best way to secure your critical business information. It helps protect your business secret, marketing strategies, financial, and other sensitive information. Even though there is no universal NDA that can work for every company, it should contain details about the companies involved, the information that needs to be protected, the obligations of the parties, the scope of confidentiality, and the repercussions of breaching the contract.

One of the best ways to maintain confidentiality in software development projects is to hire full-time remote developers ready to sign the NDA. Turing has helped many Fortune 500 companies and top startups recruit talented remote developers. Join us and build your dream engineering team in 3-5 days.

Author

  • Author

    Subhasish Dutta

    Subhasish is a science graduate but a passionate writer, and wordsmith who writes website content, blogs, articles, and social media content on technologies, equity market, traveling, and other domains. He has worked with Affnosys and FTI Technologies as a content writer.

Frequently Asked Questions

Companies use NDA to protect confidential information. However, if an NDA does not contain the key elements, it is of no value, and the company can't enforce it. Here are six key components every business should include in the NDA.

  • Identification of parties involved - Disclosing and recipient parties
  • Description of the confidential information
  • Requirements and obligations of every party involved
  • Period for the validity of the NDA
  • Exclusions to the confidentiality agreement
  • Consequences of breaching the NDA

A non-disclosure agreement for a software company is a legal contract between the business owner and a software developer or a software development company to prevent any data breaches and maintain confidentiality.

Breaching an NDA may result in legal action against the defaulter. The consequences may include termination of the contract, paying for the financial losses (a fixed amount mentioned in the contract), attorneys’ fees, and court costs.

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