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  1. #1
    Join Date
    Mar 2012

    Default Responsibility for Development Costs When Outside Funding Falls Through

    My organization has been working with a developer for a number of years. The latest project of the developer was commissioned by us under the understanding the in a joint effort the developer would source external funding for development and implementation of the project. The developer was able to source funding for the project on a contractual basis with funding agency C for a term of 5 years, renewable on an annual basis. As a result of this arrangement, we agreed to share the proceeds of this funding based on an agreed ratio. However in order to show allocation of the funds for approval the costs for development was inflated. eg. Development was listed as 500,000 whereas based on industry standards the realistic costing for development of the project would cost 150,000. We were assured by the developer that the funding would be forth coming for a 5 year term. At which time the schedule of payments would have allowed us to have paid sufficient to acquire ownership of the application.

    The funding was received for 1 year and funds were allocated as agreed. At this time 60% of the application was developed and deployed for use by my organization. However the contract to govern this was still being discussed and negotiated and to date has never been signed.

    Unfortunately, the funding agency did not renew its commitment for funding for the second term. Consequently, all development was halted. The developer endeavored to peruse funding from alternative sources while urging us to continue use of the incomplete application. After a period of 3 years seeking funding it was agreed that the pursuit was futile.

    organization approached the developer to acquire the software in its current state on newly revised terms as the previously acquired funding sources had been lost. However, the developer agrees only to sell based on the originally inflated pricing scheme, this was unsatisfactory to my organization. As a result we have decided to give up use of the application and wish to walk away.
    What then are the implications in doing so?

    1. Can the developer hold us accountable to pay the inflated quoted price which was agreed for ownership of the software? Even while we are no longer interested in acquiring the software?
    2. By virtue of the fact that the contract of agreement was never signed, can we still be held liable?
    3. What would be the most appropriate and recommended action if the matter was to be dealt with through arbitration. What would be the most likely outcome?
    4. Does that fact that our organization was instrumental in conducting technical needs assessments, testing of application before it goes live and other intellectual property inputs to the system have any bearing.

  2. #2
    Join Date
    Sep 2011

    Default Re: We We Wbe Held Liable to Pay Inflated Cost, Can We Walk Away

    The way I read this story, is you were actively engaged in committing fraud with the developer. The "mark" wised up and bailed. Now the developer is holding you to the fraudulent numbers and you are unhappy. Correct?

  3. #3
    Join Date
    Sep 2005
    Behind a Desk

    Default Re: Responsibility for Development Costs When Outside Funding Falls Through

    We don't know anything about your project, and you didn't even bother to follow the instruction to identify the state in which this is occurring. Consult a business lawyer in your undisclosed state.

    If you're asking whether the developer can hold you to an oral contract, supported by past practices, as to what you are obligated to pay, quite possibly.

    The fundamental problem here appears to be that you conspired with the developer to engage in a fraudulent enterprise, and were caught. Oops.

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