Akasaka International Law, Patent & Accounting Office.

Litigation Risks and Practical Preparations for Contractors in Agile Development 1

Apr 17, 2025UP!

agile-legal-risks-infographic

 

Introduction: Agile Development in Japan

Agile software development (approx. 10% of projects) has been widely adopted in Japan due to its flexibility and adaptability to change, compared to the traditional waterfall model (approx. 90%).

Agile development ≠ exemption from liability

The iterative and incremental approach of agile enables vendors to develop quickly and respond flexibly to customer needs, but introduces new legal challenges and risks that require careful consideration.

While waterfall development is contract-based, agile development is typically quasi-mandate but still imposes heavy duty of care.

Software Development Challenges

Software development presents unique challenges that affect legal interpretations:

  • Information asymmetry – Software is unfamiliar to judges and users
  • Judges may mistakenly equate construction work with software development
  • Requirements have irreversibility – changes cause significant rework
  • Estimation is inherently difficult in agile development
Agile development is a “treasure trove of disputes” unless both vendor and user form a “compatible team” through mutual understanding and meticulous documentation.

Legal Responsibility & Contract Types

Contract types significantly affect where legal responsibility lies in software development projects:

Contract for Work

Contractor promises to complete specific work, client promises to pay for results

Contractor must deliver conforming deliverable by deadline

High compatibility with waterfall model

Quasi-Mandate

One party entrusts handling of matters to other party

Main obligation is duty of care, not specific deliverable

Better suited for agile development

Risk 1: Specification Change Disputes

In agile development, ambiguous specifications and estimates can lead to disputes over the contractual scope of performance:

Common Disputes:
  • Whether later added specifications were included in initial estimate scope
  • Deliverables being evaluated as insufficient, demanding free additional development
  • Rejection of “not bearing outcome responsibility” claims despite quasi-mandate contract
In litigation, exchanges between users and vendors during development are critical evidence

It’s extremely important to clearly record the process of consensus formation regarding specification changes throughout development.

Risk 2: Information Provision Violations

Courts tend to consider that vendors bear a heavier duty of explanation based on their expertise:

Key Information Requirements:
  • Explain the agile approach itself (specification change risks, additional costs possibility) in advance
  • Establish process to obtain clear acceptance confirmation for each sprint’s deliverables
  • Actively resolve user misunderstandings about agile development or deliverables
Evidence must show not just that deliverables were presented but that users understood and agreed to their content.

Risk 3: Progress Management Neglect

Agile development values “transparency” and “quick issue discovery,” but neglect in these areas damages vendor credibility:

Trust-Damaging Situations:
  • Sprint completion reports become mere formalities, accumulating recognition gaps
  • Defects or technical constraints not shared early, becoming serious problems later
  • Neglecting the product owner’s lack of understanding, encouraging misunderstandings
Saying what needs to be said can prevent future obstacles

It’s generally good to clearly document discussions in minutes, making any disputes apparent rather than hidden.

Materials for Litigation Preparation

Standard documentation is insufficient for litigation. Additional materials needed include:

  • Work reports with detailed activities
  • Sprint backlogs showing planned work
  • Product backlogs demonstrating requirements
  • Source code analysis reports
  • Meeting minutes with clear decisions
  • Communication records (emails, messages)

For judges, terms like “agile,” “source code,” and “product owner” may be unfamiliar. Clear explanations help avoid misunderstandings.

Keep backups of all development work, especially when working in the client’s cloud environment.

Practical Recommendations

The first priority should be to avoid litigation and resolve issues through discussion:

  • Document everything meticulously, especially specification changes
  • Obtain explicit acceptance for each sprint deliverable
  • Communicate technical constraints and challenges early
  • Ensure product owners fully understand the agile process
  • Keep comprehensive backups of all development work
  • Consult early with lawyers who understand software development
Engineers need to properly explain to lawyers so judges can understand the work

Remember: Disputes always exist – preparation is key to successful mitigation.

Effective Dispute Resolution

Understanding the legal landscape helps in preventing and resolving disputes:

In cases of dispute:

  1. Document all communications and development decisions
  2. Engage technical experts who can explain complex concepts to non-technical parties
  3. Review contract terms to ensure alignment with actual development practices
  4. Consider mediation before litigation
Listed companies may need to file lawsuits for accountability reasons, but other companies should prioritize prevention and settlement.
Source: Research Note on Legal Situation of Agile Development in Japan, April 6, 2025

 

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