Legal Requirements to Verify When Subcontracting Arises in Software Development Contracts
Article posted in 2025-05-30 15:33:26 | VEAT
Software development projects are inherently difficult for a single company to handle from planning to development, testing, and maintenance. This often leads to a subcontracting structure where the main contractor re-entrusts some of the development work to external development companies. However, failing to thoroughly review relevant laws and regulations during this process can lead to legal risks.
The most representative law is the 「Act on Fair Subcontracting (hereinafter referred to as the ‘Subcontracting Act’).” The Subcontracting Act applies not only to manufacturing but also to technical service areas such as software development, and requires the main contractor to fulfill several legal obligations if certain conditions are met.
First, according to Article 13 of the Subcontracting Act, a written document containing the main conditions of the subcontracting agreement must be provided. Specifically, this should include the scope of work, delivery schedule, and price calculation criteria. Simple verbal agreements or email notifications will not satisfy the legal requirements.
Article 13-4 prohibits special clauses that unfairly restrict or infringe on the interests of the subcontractor, and Article 14 explicitly prohibits setting a subcontract price significantly lower than the normal price. Such actions can lead to corrective measures by the Fair Trade Commission, as well as claims for damages and criminal penalties (fines for representatives, etc.).
Meanwhile, software development contracts also include important elements such as intellectual property rights assignment, confidentiality obligations, and liability for delays. These must be designed so that they do not conflict with the obligations under the Subcontracting Act. In particular, the issue of IP assignment for development results can affect future commercialization, further development, and investment attraction, so it is desirable to clarify it at the initial stage of the contract.
The software development structure that includes subcontracting agreements requires not only technical completeness but also the completeness of the legal structure, which is a factor that determines the success or failure of the project. Therefore, in practice, it is essential to accurately understand relevant laws and regulations and to draft and manage contracts that reflect them.
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Law firm Veat