Importance of NDA for Software Development

In this volatile and uncertain market, you collaborate with businesses to be better in race. This necessitates a partnership which might include the exchange of information. Every level of engagement with a potential strategic partner, from marketing to custom software development to consulting and management, requires you to disclose some details about your project.

It definitely matters what kind of data is being shared, and in how much of it is there; it can’t be utilized for any unapproved purpose. Hence, this allows companies to draft a Non-Disclosure Agreement that ensures that it will not be passed on to other parties without specific consent (NDA).

A righteous use of NDA might be helpful for businesses to access corporate information , intellectual properties and other considerable important data that underpins the existing systems, product roadmaps, lines of code, and potentially even customer and financial data in the software development areas. Let us delve deeper on how NDA plays a vital role in the software development process. 

Let’s start with the fundamentals of the Non-disclosure Agreement.

1. What is a Non – Disclosure Agreement (NDA) in Software Development?

For any  software development company- “A non-disclosure agreement can be defined as a written confidential contract between two parties such as businesses who are looking for software development services and software developer or software development vendor. It crafts a list of information that is to be shared and made confidential between the two.”

NDA’s are like a written roadmap, which if properly drafted and communicated, can resolve most of the common disputes during the software development process. NDA’s commonly come into the picture when two parties are into a business relationship, starting for a software development project for a specific period of time. NDA allows businesses to safeguard their relationship without any fear of leaking, exposing or stealing confidential information, such as proprietary information like ideas and trade secrets. In case any party decides to breach the confidentiality agreement  by sharing confidential information and sensitive information of the software project then the other party has all the rights under this act to seek legal recourse against the other party. Similarly, in the custom software development business, there are software development agreements signed to notify the conditions to be followed in the NDA agreement.

Let’s delve deeper and understand how the Non-disclosure agreement plays an essential role in custom software development.  

Some of the key facets of the confidential disclosure agreement are: 

  • An induction to both the parties and their business backgrounds.
  • Drawing a fine line between confidential and non-confidential data.
  • The period of the agreement.
  • What can be included in the agreement and what not.
  • Implications of not abiding by NDA.

Signing an NDA is a common practice in the custom software development industry because the developer might need a lot of insight into the business to develop and implement projects. After exchanging all the detailed information about your project with the custom software development company, ask for an NDA. This agreement is considered as a Trustmark between two parties. The custom software development company can also ask the client to prepare an NDA with their clauses included from previous experiences and other agreements with different companies. Through this, it is advisable to ensure that the receiving party is not going to expose the sensitive and valuable information for any irrelevant purpose regarding the software project.

2. Types of NDA

2.1 Unilateral Non-Disclosure Agreement

‘’Uni” means one way, so this is a one-way agreement where any one of the two parties can release it to a third party. Say for instance, there are two parties involved in this process. One is the custom software development company and the other one is the recipient. If the recipient signs the document and agrees to keep data confidential without any data tampering then such type of pact is a Unilateral NDA. Mostly, this type of agreement is preferred by freelancers and consultants.

The best example of a unilateral contract is an insurance company that agrees to pay an amount to the insured person if a certain unfortunate event may occur. This is a unilateral agreement where the insurance company will not pay if the mentioned event in the non disclosure contract  never occurred.

A unilateral contract doesn’t come with validity until one party has completed the assigned task. Legal actions can be taken in case of any information being leaked and the other party isn’t ready to pay the agreed sum mentioned in NDA. In the case of custom software development, if the task was completed by the custom software company then the receiving party has to bear the amount decided in the NDA as an act of contract breach. 

2.2 Mutual Non-Disclosure Agreement

In cases of Mutual NDA, both or all the sides of the parties are involved, take a pledge and sign a contract where they agree to keep the information confidential. It is a fair deal between two or more parties and is responsible for preventing no future complications or disputes. It is a legal confidential document that enforces both parties to keep information secretive and not to share the listed information in the agreement with any third party. This agreement also details the potential consequences, if the information is disclosed without the consent of both parties.

3. Why Should You Ask for an NDA for Software Development?

3.1 To Keep Your Trade Secrets Secure

Certain aspects of a company’s operation are kept under wraps to maintain the company’s competitive advantage. It might be something like a special recipe, a top-secret production method, an undisclosed advertising campaign, or a private customers. Disclosure of this information might have a devastating effect on company finances. If you’re working on a piece of software together, you might have to swap some of these elements. A non-disclosure agreement shields the information from the software firm’s rivals.

3.2 To ensure Secrecy of Your Project before Releasing

Businesses frequently use cutting-edge technological solutions in order to create cutting-edge products and services, but they don’t want their rivals to have access to this research. Your software development project’s sensitive information is at risk if you don’t have the service provider sign a non-disclosure agreement. If you want to be the first to market with your product, you need to keep the details of your project under wraps.

3.3 To Protect Other Sensitive Information

The software, technical procedures, and concepts are all protected by a non-disclosure agreement throughout development. Sometimes you’ll have to reveal information on your customers, like their names, addresses, credit card numbers, and more. If you sign a non-disclosure agreement, the other party has a legal obligation to protect the privacy of the information you provide.

4. What should an NDA Contract Cover?

As we know, NDA is a unique software outsourcing contract made between two parties mutually agreed on specific terms and conditions listed. It is a contract or a legalized document required to be signed by both parties with a guarantee of not disclosing any protected information to third parties. It creates a confidential pact between the two parties, and there is a list of information in the agreement that can be shared. This list can include several components that both parties would like to include and should be clearly defined. 

4.1 Confidential Material

Custom software development service is a complicated aspect where much confidential information is involved. There can be multiple questions rising in your mind in reference to confidential materials such as:

  1. What information is being protected?
  2. Is it just the documents? 
  3. Is the data inclusive of information shared in writing or shared verbally, as well?
  4. Which information shared will be considered as a data breach? 

and many more such questions.

To give you more clear insight about Confidential material- It is the specific information which is only available to the company and if it is exchanged with a third party then it should be identified as Confidential Material. 

The term “Confidential Material” under this agreement does not include information from a disclosing party such as: 

  • The publicly available data. Under this clause, if data has been disclosed then neither party is at fault.
  • Once the information is successfully delivered then all the rights are possessed by the receiving party. Any information received from third parties in such cases has a non-disclosure obligation.
  • The information which is independently discovered or received from a third-party and the supplier cannot take any action of the data breach against the receiving party.
  • Awareness of public statements or disclosures.

4.2 Ownership/ Rights

In every industry including custom software development services, intellectual property rights are a vital aspect to prevent the chaos that can potentially occur.  

There are 4 types of intellectual property rights;

  • Patents
  • Trademarks
  • Copyrights
  • Trade secrets

In a case where the IP is possessed by multiple parties then all the parties and their businesses must be registered on behalf of the company on a single platform, along with the names and authority to execute the NDA.

4.3 Handling Confidential Information

Is it just the superior management team or the leadership team who has the right to handle all the confidential information from either party? No, there are multiple users to this. This section contains all the refined information and names of people or groups who are involved in the project and can have access to the details.

4.4 Assign/ Delegate Authority

Without providing any prior notice or taking consent none of the parties has the right to assign or delegate any authorities to anyone. If there is a notice to such attempts then it shall be considered as null or void in effect from that very moment.

4.5 Time-Span of NDA

The prepared NDA must propose a definite duration that should be valid and enforceable. The standards of the custom software industry recommend up to two years of contract normally but this exceeds or shrank depending on the needs, technology and complexities. 

4.6 Governing Law

The governing law in the agreement contemplated in accordance with the laws of the custom software development company without regard to any provisions of law conflicts.

4.7 Deemed Confidential

The trade secrets of the organization have commercial value and hence it needs to be protected from getting leaked. Businesses protect this information using deemed confidential information. These elaborated forms of information are included in an NDA being accurately mentioned so as to block the business from any breach. In this segment, the companies can clearly mention which data is to be kept confidential and which is not. For securing the potential disclosures, this section crisply states the vision of information without any ambiguity or glitches. In particular, if we take verbal information into consideration, it will always give the other party an opportunity to leak the information and there can be confusion about what can be said and whatnot. Deemed confidential also refers to verbal information that has been confirmed by the disclosing party in writing with a notification that it cannot be disclosed and must be kept confidential.

4.8 Consequences of Breaching the Contract

In the process of contracting with a partner of your choice, you must know the company and its breaching consequences beforehand. Your software development NDA will be useless unless you identify the consequences of a possible breach.

Typically, the disclosing party demands monetary compensation like a fixed amount determined by the contract. Some include attorneys’ fees and court costs, which can be retrieved from the party who violated the contract if the claimed wins the lawsuit. It’s preferable to avoid sanctions. Therefore it is advisable to businesses that they add the clause of breaching consequences in their contract to save them from any kind of disputes.

It’s also a good idea to offer a few techniques of alternative dispute settlement. ADR, which provides for the resolution of legal issues outside of court, these are split into three types:

  • Negotiation- When two parties want to settle their differences on their own is called negotiation.
  • Arbitration-  Here there is a “private” court in which a neutral individual listens to both sides of the parties and then resolves the dispute.
  • Mediation- A third party who is not involved in the dispute assists the parties in reaching an agreement.

5. Things better avoided in the NDA

In an NDA, it is entirely important on how you display the information in your NDA. After all, you make the rules and decide what is and is not acceptable. However, there are a few typical faults you should avoid when preparing the document:

5.1 Not Obtaining Legal Counsel

One of the major aspects is that nobody takes help of legal advisors while crafting an NDA. It is very important as most of the time it is unclear what information would be considered sensitive and what not. Furthermore, there is a risk of breaking existing legislation or rules. Ignoring the assistance of an attorney in such instances is like skating on thin ice. The NDA is a legal document, and if you have any questions, we recommend consulting with a lawyer to go over all terms and restrictions.

5.2 Business Goals are Not Set

When you describe or mention any confidential information, you should avoid using overly complicated language or terminology. Just use relevant elements pertaining to your specific project and get to the point. Prefer to avoid language barriers by using multi language contracts if you and the recipient party speak different languages.

There is no need to add mass data, material unrelated to your case, or repeat the same steps several times. Also, when the goals are not set, it is usually preferable that the NDA is understood by the recipient and there are no issues with it.

5.3 When the Duration of Project is Not Defined

It may not make sense to force your partner to sign a paper with an indefinite duration. There should be a finite time described for the project to end. An NDA should be operational within specified time or periods. What you’re sending over is exactly what you want it to be. As a result, it is preferable to approach this process with caution. So, when there is no clause regarding your project deadline, do not take it up.

6. Conclusion

Now that every business wants to empower itself with technology-enabled solutions, collaboration is a must. In this blog, we have tried to put across all the potential aspects that will create ambiguity in the user’s mind or may no longer hesitate them in signing a legal contract. NDA comes with a broad spectrum of benefits that will help them develop new business strategies, build new avenues and accelerate growth. So why not harness the power of the insights available in the blog and collaborate with businesses seamlessly.

Itesh Sharma

Itesh Sharma is core member of Sales Department at TatvaSoft. He has got more than 6 years of experience in handling the task related to Customer Management and Project Management. Apart from his profession he also has keen interest in sharing the insight on different methodologies of software development.


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    1. Catherine

      I think signing an NDA is the most critical aspect during software development. As we know businesses share their confidential information with third-party service providers during the development process. By signing an agreement with our service provider we can eliminate the stealing and sharing of confidential information with outside individuals. It also establishes trust between both the parties which is crucial for a smooth business process.

      1. Emily

        A well-drafted NDA will not only protect you from financial losses and poor software quality but also can be a perfect starting point for long-term and flourishing business cooperation. This will also make the expectations for both parties clear.