IT and software project disputes: legal risks, responsibilities and solutions

IT and software projects are critical to digital transformation, but they are also a frequent source of commercial and legal disputes. When an IT project starts to fail, both IT service providers and clients search online for clarity about their rights, obligations and options. Questions about breach of contract, liability, termination and dispute resolution are among the most common search queries in this context.

This article explains why IT and software project disputes arise, how responsibility is assessed, and how both parties can reduce legal risk and resolve conflicts effectively.

Why do IT and software project disputes occur so frequently?

IT project disputes typically arise because contractual expectations do not align with project reality. At the outset of many software development projects, requirements are incomplete, business needs are expected to evolve and timelines are ambitious. As the project progresses, changes accumulate and communication becomes more complex, particularly where expectations are not fully aligned.

From the client’s perspective, disputes often arise when the delivered software does not meet functional or operational expectations. IT service providers, by contrast, frequently experience disputes when scope expands without corresponding changes to budget, deadlines or contractual terms. In most cases, disputes are driven by misalignment rather than deliberate non-performance.

What is a breach of an IT or software development contract?

One of the most asked questions in IT disputes is whether a party has breached the software or IT services contract. A breach of contract occurs when a party fails to comply with its contractual obligations, but in IT projects this assessment is rarely straightforward.

A service provider may be accused of breach for failing to deliver agreed functionality, missing milestones or delivering software that does not meet contractual specifications. A client may be in breach for failing to pay, failing to provide timely input or repeatedly changing requirements outside the agreed change management process.

Importantly, not every project issue constitutes a legal breach. Most IT contracts include mechanisms such as remediation periods, phased acceptance or escalation procedures precisely because friction is expected in complex software projects. It is therefore crucial to draft a solid contract in advance.

What should you do when an IT project is failing?

When an IT or software project begins to fail, many parties instinctively consider legal action. However, early escalation to litigation often increases costs and reduces the likelihood of a workable solution.

A more effective approach is to revisit the contract to clarify scope, responsibilities and remedies, while carefully documenting project developments and communications. Many disputes can be contained or resolved through structured dialogue within the agreed governance framework, particularly before positions harden and trust breaks down.

Who is liable when software does not meet expectations?

Liability in IT and software project disputes is rarely absolute. Courts and arbitral tribunals increasingly assess how the project was managed in practice, rather than focusing solely on contractual wording.

This is especially relevant in agile and iterative software development projects, where clients remain actively involved in prioritization, testing and acceptance. In such cases, responsibility is often shared, and outcomes depend heavily on collaboration, decision-making and transparency throughout the project lifecycle.

Termination of IT and software contracts: legal risks

Termination of a failing IT contract is a frequent topic, but also one of the most legally risky actions a party can take. While many software development contracts allow termination in cases of material breach or persistent failure, these rights are usually subject to strict notice and cure requirements.

Improper or premature termination may expose the terminating party to substantial counterclaims. For both clients and IT service providers, termination should therefore be considered carefully and only after alternative solutions have been assessed. To mitigate legal risk, it is advisable to seek legal advice at an early stage.

IT dispute resolution: litigation or alternatives?

Many IT disputes do not need to end in court. In fact, litigation is often ill-suited to resolving complex software and technology disputes.

Alternative dispute resolution mechanisms such as negotiation, mediation, expert determination and arbitration are frequently more effective. These approaches allow parties to rely on technical expertise, maintain confidentiality and preserve commercial relationships. As a result, many IT contracts now require parties to attempt alternative dispute resolution before initiating litigation.

How to reduce the risk of IT and software project disputes

Dispute prevention starts long before problems arise. IT service providers reduce risk by ensuring that contracts accurately reflect technical scope, clearly document assumptions and enforce disciplined change management. Clients reduce risk by investing time in realistic requirements, maintaining active involvement throughout the project and respecting contractual governance and escalation mechanisms.

Successful IT projects are typically treated as collaborative commercial relationships rather than rigid transactional arrangements.

Conclusion: managing legal risk in IT and software projects

IT and software project disputes are common, but they are not inevitable. Most conflicts arise when contractual frameworks fail to keep pace with project reality. Parties who understand the legal risks, recognize early warning signs and address issues constructively are far better positioned to resolve disputes efficiently and protect long-term commercial interests.

Hereby the blog in Turkish.