4 Important provisions of an ecommerce implementation contract

Thanks to this post, you’ll find it easier to talk with your ecommerce agency and lawyers when negotiating a contract. I offer ideas for 4 very interesting provisions that will increase your security.

What are the 4 important provisions of an ecommerce contract?
How does the standard contract signing process look?
4 important provisions of an ecommerce implementation contract
Summary

What are the 4 important provisions of an ecommerce contract?

The 4 that I would like to highlight here are:

1. A guarantee not to exceed a specified number of hours if you are billed on a Time & Materials basis.
2. Security for copyright issues, especially in the context of modules (extensions) developed specifically for your project, and ensuring licenses for third-party modules that will be used in your project and which the ecommerce agency has already developed.
3. Introducing a provision into the contract defining what constitutes a gross error, along with a stipulation that such errors will be repaired at the contractor’s expense.
4. The Contract structure should be constructed so that it can be divided into two phases or two different contracts – a contract for the pre-implementation phase and a contract for the implementation.

If you want to find out why I think these 4 provisions are extremely important and how implementing these solutions into the contract may increase your security and make your life easier during the online store implementation, please read on.

How does the standard contract signing process look?

When you, as a client, decide to work with an ecommerce agency, you inform them of your intent and ask for a contract draft. Usually, the contract draft is prepared by the agency or software house with which you plan to cooperate.

This is natural since ecommerce agencies carry out such projects every day. Their legal department or an external company supporting the agency in legal matters has a prepared contract draft for this type of collaboration.

In practice, it is better to leave this in their hands, as the agency and lawyers working for it have significant experience in this specific type of IT project. Usually, the contract covers all the most important points of cooperation in the implementation of an online store, B2B ecommerce, or PIM.

I do not recommend that your lawyers prepare the contract. If you are a manufacturing company, your lawyers may not be specialists in IT projects and certainly not in ecommerce implementation projects.

It would probably be their first contract of this type and they might overlook many important points. It is best if the party preparing the contract draft knows and understands how the implementation project is later realized. This way, the provisions will not be detached from business practice.

4 important provisions of an ecommerce implementation contract

As a company planning the launch of a B2B ecommerce or online store, you will receive a contract proposal.

You should pay attention to 4 points that are often overlooked or not negotiated by clients. With this knowledge, you’ll find it easier to talk with the contractor and lawyers representing the ecommerce agency.

1. Guarantee not to exceed the budget

The first point is a guarantee not to exceed a specified number of hours. Usually, when you work with an ecommerce agency on a Time & Materials basis, you pay for the hours worked.

A drawback of this billing model is the lack of a guarantee not to exceed a certain number of hours. And this, a lack of financial security. In one of my previous articles, I described how to make Time&Materials billing more financially secure. Now I will go a step further.

I will propose a specific provision to the contract that will increase the security of this billing model. If you are being billed for the hours worked, at the beginning of the cooperation, you receive an estimate of the hours needed for the implementation.

However, you have no guarantee that the implementation will be completed within the estimated number of hours. The ecommerce agency may estimate that implementing your solution will take, for example, 1000 hours or 500 hours. But during the work, it turns out it is not 1000 hours, but 8000 hours.

This means an eightfold difference. According to Time and Materials billing rules, you must pay for these 8000 hours. In such a case, you may be upset, wondering what the initial estimation was for if it had nothing to do with reality.

In such a situation, you can propose to the ecommerce agency to perform a detailed pre-implementation analysis. This analysis should precisely describe the scope of the implementation.

Once this is done, ask the agency to update the budget estimate needed to implement the online store. The agency makes estimates and states, for example, 736 hours * 65 EUR/USD = 47.840 EUR/USD for the implementation.

Then you can agree to such conditions with the addition of a provision to the contract:

• If, however, the final number of hours for implementation exceeds the 736-hour estimate by more than 30%, you pay 50% of the hourly rate for each additional hour above 736 hours.
• If the final cost of implementation exceeds 50%, you pay 0 EUR/USD for each additional hour beyond that 50% overrun.

Such an assumption is a hybrid of the Time & Materials and Fixed Fee models.

On the one hand, this gives you financial security. You know that you will not pay more than 1.5 times the estimate.

On the other hand, if the agency has prepared a reliable estimate, it will have no problem accepting this provision.

On the third hand, if the agency completes not in 736 hours but in 600 hours, you will pay for 600 hours because you are being billed in the Time & Materials model (thus, you can use the benefits of Time & Materials).

That is a brilliant provision.

Copyright

The second point is the issue of copyrights. Deciding to implement an ecommerce engine often involves choosing an open-source license. For example, Magento offers a Community Edition for which you do not have to pay.

A similar situation applies to Presta and Sylius – you do not pay for the license; you use what’s known as an open-source license.

Then the question arises whether the ecommerce agency can transfer the copyright of the open-source code. The answer is no. This is because the agency is not the owner of that code. However, the ecommerce agency often creates modules that are additionally plugged into your online store and the open-source engine.

In this context, you should take care of several things.

• First, receive copyrights for all graphic designs created during the project.
• Second, ensure that all copyrights for modules individually added to your project are received.
• Third, obtain a license, preferably for free, from the ecommerce agency if it uses modules it has already written. For example, the agency may have already created its module for omnibus, meaning you don’t have to incur the cost of creating the whole module and solution.

However, you need to be sure that after the cooperation with the agency ends, you will be able to use this module in your store all the time. You must have a license for the use and modification of this module.
The license should be as long as possible. This is very important, so you should take care of this aspect.

Definition of gross error

Another point you should include in the contract with the ecommerce agency for creating an online store is the definition of a gross error.

If you are billed on a Time & Materials basis, you pay for code errors and later troubleshooting. However, you can introduce a definition of a gross error.

What might that be? It might be a situation where the login page has a link to remind you of your password, but when you click it, instead of landing on the right page, a completely different subpage appears, for example, an Instagram feed.

You wouldn’t want to pay for such a glaring error in such a case. You would want to introduce a definition of gross error, and repairing such an error should be free of charge.

However, it is important to remember that unfinished functionalities are not errors.

It is therefore necessary to distinguish two situations: when something is an error, that is, it has been coded to the end and does not work according to assumptions, or when something has not been finished. In the case of the first situation, you can apply the definition of gross error in the second not so much.

Contract structure

The last aspect I would like to address is the structure of the contract. The best solution is to decide at the outset whether you want to sign a contract for pre-implementation analysis and implementation at the same time, or just for the analysis itself.

Signing a contract just for pre-implementation analysis is a good solution because no software is produced at the analysis stage, which means there will not be all the provisions regarding the software production methods. There will not be all the provisions regarding SLA.

In short, signing this contract will be much faster. If you are at a stage where the start date of cooperation is important to you, signing a contract for pre-implementation analysis only is a great idea.

As you approach the end of this analysis, you can begin processing the implementation contract. Dividing these two contracts allows you to test the ecommerce agency before committing to the implementation project.

This will allow you to check how the collaboration with the given agency is going and assess whether you want to continue working with them.

Alternatively, if you want to reserve an agency for yourself and you care about the shortest possible implementation time, you should sign a contract for pre-implementation analysis and implementation right away.

However, it is worth remembering that the process of signing a contract for pre-implementation analysis and implementation at the same time takes more time than for the analysis alone. Such a contract has many provisions on copyrights, software production, and SLA topics, which makes it much more complicated.

Summary

I am convinced that applying the above points will increase your security, primarily financial, in the new ecommerce project.

To summarize, the four important provisions that you should implement in the contract with the ecommerce agency or software house are:

1. A guarantee not to exceed the maximum number of hours in the case of Time & Materials billing (i.e., for hours worked).
2. Clarification of copyrights, ensuring the transfer of copyright to graphic designs and individually produced modules, and ensuring licenses for modules provided by the agency for free.
3. The introduction of a definition of gross error and determining how payment for work related to the removal of such errors should look.
4. The fourth point is to divide the contract into pre-implementation analysis and implementation realization.

I hope I helped.

If you are currently thinking about implementing e-commerce and are thinking about Magento, then let’s talk. At the very beginning, we’ll review your situation and see if we can help you.

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