Software development companies don’t need to sign an NDA. Here’s why.

Published on June 24, 2016
Last modified on May 19, 2022

Estimated reading time: 3 minutes

Imagine that you have made a very innovative and essential project for your company. If your competitor finds out what you did and copies it, there is a risk that he’ll reach the market before you do.

The solution to such instance is a Non-disclosure agreement (NDA). Or is it?

There are two types of NDA contracts―or rather, there are two types of companies that sign NDAs:

  • Type 1: For this type of company, an NDA is a standard thing that only needs to be signed so that you can proceed. They know it's almost impossible, not to mention very expensive, to enforce an NDA. So they just sign without a  fuss to get started right away.
  • Type 2: There is another type that sees an NDA as something that will have a limiting effect on their business because they intend to comply with each word in the contract. For these types of companies, the price often rises if they sign an NDA.

Continue reading this blog to understand why.

The problem with NDAs

When a supplier signs an NDA, they need to take various precautions to ensure that they are complying with what they signed—and the thing is, it costs money to 100% comply with an NDA. For starters, they have to make sure that:

  • Only the people working on the project have access to information about the project while everyone else in the company does not. It sounds easy in theory, but it’s more complicated in practice; and
  • The people assigned on the project will not work for companies in the same industry as the client with whom they have an NDA, as a conflict situation might come up otherwise.

In addition, the team that will work on the project must be informed and briefed about the NDA and be willing to comply with it 100%.

A real-world example

Two software developers, let’s call them ‘developer A’ and ‘developer B’, work in the same software development company.

Developer A works for a client with whom an NDA was signed.

Developer B works for a client who is a competitor of developer A's client, and with whom there is no NDA.

An unfortunate accident happens to developer B, making him unable to work for two months. Things could have been easier for the software development company if they could assign developer A to work on developer B’s tasks.

However, this is not possible because of the NDA with developer A’s client. In small businesses, this is not practical and can be a huge problem.

In reality…

Often, but not always, it doesn’t matter whether you have an NDA or not.

In 80% of all businesses, the only secret that you have to protect from competitors is what goes on in the marketing department.

The other 20% is composed of companies that are in the business of producing high-tech systems, therefore requiring NDAs.

Some final thoughts

If I were to take time to have an NDA with a supplier, I would focus on my AdWords consultant, SEO specialist, business consultant, and the likes. These are the people who have a deeper insight into how the company is running, what the company’s future plans are, and even how the company acquires new clients.

But overall, the important thing to remember is this: a contract is only worth something if you actually enforce it. Keep this in mind the next time that you need to put an NDA in place with a supplier.

If you have any questions or other thoughts about this blog, just fill up this form and I will gladly discuss it with you.


Peter Skouhus

Peter Skouhus

A Danish entrepreneur who owns 1902 Software Development, an IT company in the Philippines where he has lived since 1998. Peter has extensive experience in the business side of IT development, strategic IT management, and sales.