Updated on March 21st, 2023
A software development letter of intent (LOI) is used to arrange the terms of a potential working relationship between a software developer and their client. While it may resemble a service contract, a letter of intent isn’t conclusive and can be negotiated until the parties come to a final agreement. The LOI outlines terms for the proposed working relationship, including the services the developer intends to perform, their fees, and the timeline for completion.
What to Include in the LOI
A letter of intent for software development will need to include the following terms and conditions:
- Party Information – The name and address of the software developer and potential client.
- Intent of Letter – A statement explaining that the letter contains terms for a potential contract and is not a definitive agreement between the parties.
- Services – A brief description of the duties the developer is expected to carry out, including general goals set by the client.
- Contract Dates – The projected start and completion dates of the software development project.
- Payment Terms – A section addressing the developer’s fees and payment conditions.
- Binding/Non-Binding Effect – A statement indicating which parts of the letter will and will not be legally binding.
- Signatures – An area at the bottom of the letter where the parties can provide their signatures.
An LOI’s Purpose
There are three primary goals that should be achieved with an LOI for software development:
- Indicate the parties’ interest in forming a working relationship;
- Establish the basic terms and conditions of the project; and
- Negotiate a final service contract.
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SOFTWARE DEVELOPMENT LETTER OF INTENT
[SENDER (e.g., DEVELOPER) NAME]
[SENDER STREET ADDRESS]
[SENDER CITY, STATE, ZIP]
[RECIPIENT (e.g., CLIENT) NAME]
[RECIPIENT STREET ADDRESS]
[RECIPIENT CITY, STATE, ZIP]
RE: Intent to Develop Software
This Letter of Intent (the “Letter”) sets forth the proposed terms and conditions of the Services described hereunder and shall govern the relationship between the Client and Developer (the “Parties”) until replaced by a definitive, formal agreement addressing the same services and subject matter (the “Definitive Agreement”). The Services considered in this Letter and in the Definitive Agreement are subject in all respects to the following:
1. THE CLIENT. [CLIENT NAME] (the “Client”) with a mailing address of [ADDRESS].
2. THE DEVELOPER. [DEVELOPER NAME] (the “Developer”) with a mailing address of [ADDRESS].
3. THE SERVICES. Unless otherwise agreed to by the Parties, the Developer agrees to provide the following services: [DESCRIBE SERVICES] (the “Services”).
4. PAYMENT. Payment shall be made as follows: [DESCRIBE MANNER OF PAYMENT].
5. PAYMENT METHOD. The Developer shall be paid, in accordance with Section 4, in the following manner: [DESCRIBE METHOD OF PAYMENT].
6. START AND END DATE. The Developer shall start providing the Services on [START DATE] and the Services shall be due [DUE DATE].
7. INTENTION OF THE PARTIES. This Letter sets forth the intentions of the Parties to use reasonable efforts to negotiate, in good faith, a Definitive Agreement with respect to all matters herein. Notwithstanding paragraphs 7 through 9, which shall be legally binding, any legal obligations with respect to all other matters shall only arise if and when the Parties execute and deliver a Definitive Agreement.
8. GOVERNING LAW. This Letter shall be governed under the laws of the State of [STATE NAME].
Client Signature: ___________________ Date: [MM/DD/YYYY]
Print Name: [ClIENT NAME]
Developer Signature: ___________________ Date: [MM/DD/YYYY]
Print Name: [DEVELOPER NAME]
Benefits of the LOI
Apart from relaying the terms of a potential service contract, a letter of intent has a variety of benefits for both software developers and potential clients, including the following:
- It demonstrates the developer’s commitment to the client.
- It provides an initial project overview, outlining the developer’s goals and general responsibilities.
- It highlights issues the parties must settle before entering into a formal contract.
- It limits each party’s exposure to risk and can protect them from potential legal problems.
- By detailing the developer’s pricing terms, the letter can assist the client in preparing a budget for their project.
When to Use the LOI
A letter of intent is usually prepared following an initial discussion regarding the scope of work and general requirements of a software development project. Following that conversation, the parties will use the letter to summarize the conditions of the job offer and demonstrate intent to work with each other.
Note: Because the letter represents the terms of a potential working relationship, it will only apply to the period before the definitive service contract is signed.