Contracts and Legal Liability in Computer Engineering Practice

Last Updated: November 20, 2025

Introduction

As a computer engineer in the Philippines, your technical expertise is valuable—but technical knowledge alone isn’t enough to protect you in professional practice. Whether you’re a freelance developer, an IT consultant, an employee at a tech company, or an entrepreneur building your own software business, you’ll inevitably encounter contracts, agreements, and potential legal liability.

Every project you undertake, every client you serve, and every employment relationship you enter involves legal obligations and potential risks. A single poorly-drafted contract can expose you to unlimited liability. A missing non-disclosure agreement can leave your innovations unprotected. An unclear service agreement can lead to disputes, withheld payments, or litigation.

This comprehensive guide explores the legal landscape of contracts and liability in computer engineering practice. You’ll learn about the essential contracts every computer engineer should understand, how to protect yourself from legal liability, what to include in professional agreements, and how Philippine law affects your professional practice.

Essential Contracts in Computer Engineering Practice

Computer engineers encounter various types of contracts throughout their careers. Understanding these agreements is crucial for protecting your rights and managing expectations.

1. Employment Contracts

For most computer engineers, your career begins with an employment contract. This foundational agreement defines your relationship with your employer and has far-reaching implications.

Key provisions to understand:

• Intellectual Property Assignment: Most employment contracts include clauses stating that all work you create during employment belongs to the employer. This is valid under Philippine law for work done within the scope of employment.
• Confidentiality Obligations: You’ll be prohibited from disclosing company secrets, proprietary information, and trade secrets
• Non-Compete Clauses: Some contracts restrict you from working for competitors or starting competing businesses for a period after leaving employment
• Non-Solicitation: Restrictions on recruiting former colleagues or soliciting company clients
• Moonlighting Restrictions: Limitations on outside work or side projects

Important considerations:

• Read employment contracts carefully before signing
• Negotiate terms for personal projects and side work
• Understand what counts as “work for hire”
• Keep personal and work projects clearly separated
• Document when and where you create things

2. Non-Disclosure Agreements (NDAs)

NDAs, also called confidentiality agreements, are among the most common contracts computer engineers encounter. They protect sensitive information from unauthorized disclosure.

Legal Framework in the Philippines:

NDAs are legally binding in the Philippines under:

• Civil Code of the Philippines (contract law)
• Intellectual Property Code (RA 8293) – trade secrets protection
• Data Privacy Act (RA 10173) – personal information protection
• Electronic Commerce Act (RA 8792) – electronic agreements

Essential Requirements for Valid NDAs:

Under Article 1318 of the Civil Code, a valid NDA must have:

1. Consent: All parties must freely agree to the terms
2. Object: Clear definition of what information is confidential
3. Consideration: Each party must receive something of value

Key Components of Effective NDAs:

• Definition of Confidential Information: Specifically outline what is confidential (source code, algorithms, client data, business strategies)
• Exclusions: Specify what’s NOT confidential (public information, independently developed information)
• Duration: Limited time period (e.g., 2-5 years) after which information can be disclosed
• Permitted Use: How the confidential information can be used
• Return/Destruction: What happens to confidential materials when the agreement ends
• Remedies: Consequences for breach (damages, injunctions)

Types of NDAs:

• Unilateral (One-Way) NDA: One party discloses information to another (common in employee agreements)
• Mutual (Two-Way) NDA: Both parties share confidential information (common in business partnerships, joint ventures)

3. Service Agreements and Consulting Contracts

If you work as a freelancer, consultant, or contractor, service agreements define the terms of your engagement with clients.

Essential Elements:

1. Scope of Work: Detailed description of deliverables, specifications, and expected outcomes
2. Timeline: Project schedule, milestones, and deadlines
3. Compensation: Payment terms, rates (hourly, fixed-price, milestone-based), expenses
4. Payment Schedule: When and how payment will be made
5. Intellectual Property Rights: Who owns the work product? (Critical for developers)
6. Revisions and Changes: How change requests are handled
7. Acceptance Criteria: How the client determines work is complete
8. Termination Terms: How either party can end the agreement

4. Service Level Agreements (SLAs)

Service Level Agreements define the quality and availability standards for services you provide, particularly relevant for software-as-a-service (SaaS), hosting, support, and maintenance contracts.

Key SLA Components:

• Performance Metrics: Uptime percentage (e.g., 99.9%), response time, throughput
• Support Response Times: How quickly you’ll respond to issues based on severity levels
• Availability Targets: When services will be available
• Maintenance Windows: Scheduled downtime for updates
• Monitoring and Reporting: How performance is measured and reported
• Service Credits: Compensation if SLA targets aren’t met
• Exclusions: Circumstances where SLA doesn’t apply (force majeure, client-caused issues)

SLAs vs. Warranties:

Understanding the difference is crucial:

• Warranty: Promises that the product/service works as specified (e.g., “software will perform substantially in accordance with documentation”)
• SLA: Commits to levels of service and responsiveness (e.g., “99.9% uptime” or “response within 4 hours for critical issues”)

5. Software Development Agreements

These contracts govern custom software development projects and should address:

• Project Specifications: Detailed functional and technical requirements
• Development Methodology: Waterfall, Agile, etc.
• Deliverables: Source code, documentation, training
• Testing and Acceptance: Quality assurance procedures
• IP Ownership: Who owns the code, including pre-existing components
• Third-Party Components: Open source libraries, licensed software
• Maintenance and Support: Post-delivery obligations
• Warranty Period: How long you guarantee the software works

Legal Liability in Computer Engineering Practice

Understanding potential legal liabilities helps you take appropriate precautions and protect yourself professionally.

Types of Liability

1. Contractual Liability

This arises from breach of contract obligations:

• Failing to deliver agreed-upon services or products
• Missing deadlines
• Not meeting specified quality standards
• Violating confidentiality provisions

2. Professional Negligence

Also called professional malpractice, this occurs when your work falls below the standard of care expected of a reasonably competent professional:

• Software defects causing financial losses
• Security vulnerabilities leading to data breaches
• System failures causing business interruption
• Inadequate testing or quality assurance

3. Data Privacy Violations

Under the Data Privacy Act (RA 10173), mishandling personal information can result in:

• Fines up to ₱5 million
• Imprisonment
• Civil damages to affected individuals
• Regulatory sanctions from the National Privacy Commission

4. Intellectual Property Infringement

Using others’ copyrighted code, patented technologies, or trademarks without authorization:

• Copyright infringement for using unlicensed code
• Patent infringement for implementing patented methods
• Trademark infringement for unauthorized use of brands

5. Cybercrime-Related Liability

Under the Cybercrime Prevention Act (RA 10175):

• Creating systems that facilitate cybercrime
• Inadequate security enabling unauthorized access
• Assisting in or enabling cybercrimes

Limiting Liability: Warranties and Disclaimers

While you cannot eliminate all liability, proper contract terms can help manage and limit your exposure.

1. Limited Warranties

Rather than guaranteeing perfect performance, provide limited warranties:

• “Software will perform substantially in accordance with specifications”
• “Services will be performed in a professional and workmanlike manner”
• Time-limited warranties (e.g., 90 days after delivery)

2. Disclaimer of Warranties

Disclaim implied warranties where legally permissible:

Example disclaimer language:

“EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE SOFTWARE IS PROVIDED ‘AS IS’ WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT.”

3. Limitation of Liability Clauses

Limit the total amount you can be liable for:

Common approaches:

• Cap at contract value: “Liability shall not exceed the total fees paid under this agreement”
• Cap at specific amount: “Maximum liability limited to ₱500,000”
• Cap at fees paid in prior period: “Limited to fees paid in the 12 months preceding the claim”

4. Exclusion of Consequential Damages

Exclude liability for indirect damages:

“IN NO EVENT SHALL [PROVIDER] BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES, INCLUDING WITHOUT LIMITATION LOST PROFITS, LOST DATA, OR BUSINESS INTERRUPTION.”

5. Indemnification Clauses

Specify who bears responsibility for third-party claims:

• Your indemnification: You might indemnify clients for IP infringement claims resulting from your code
• Client indemnification: Client indemnifies you for claims arising from their content or instructions
• Mutual indemnification: Each party protects the other for their respective actions

Professional Indemnity Insurance

Professional indemnity (PI) insurance, also called professional liability insurance or errors and omissions (E&O) insurance, provides financial protection against claims of professional negligence.

Availability in the Philippines

Several major insurers offer PI coverage for computer engineers and IT professionals in the Philippines:

• AIG Philippines
• Chubb Philippines
• Howden Philippines
• Cocogen

What PI Insurance Covers

• Legal defense costs
• Settlement amounts or damages awarded
• Claims for errors, omissions, or negligence in professional services
• Data breach liability (depending on policy)
• Project failures
• Intellectual property infringement claims

When You Need PI Insurance

• Working as an independent consultant or freelancer
• Running a software development or IT services company
• Contracting with clients who require proof of insurance
• Working on high-value or critical projects
• Providing professional advice or consulting services

Best Practices for Risk Management

1. Always Use Written Contracts

• Never rely on verbal agreements alone
• Get all terms in writing before starting work
• Use email confirmations for any changes
• Keep copies of all signed agreements

2. Document Everything

• Maintain project documentation
• Keep email communications
• Document scope changes and client approvals
• Record meeting minutes and decisions
• Track time and work performed

3. Manage Scope Creep

• Define scope clearly at project start
• Document all change requests
• Require written approval for scope changes
• Adjust timeline and fees for additional work

4. Implement Quality Assurance

• Test thoroughly before delivery
• Conduct code reviews
• Follow industry best practices
• Document testing procedures and results

5. Protect Confidential Information

• Honor all NDA obligations
• Use secure storage for sensitive data
• Implement access controls
• Train team members on confidentiality
• Securely destroy information when no longer needed

6. Get Legal Review for Important Contracts

• Consult lawyers for high-value projects
• Have attorney review client-provided contracts
• Understand obligations before signing
• Negotiate unfavorable terms

Frequently Asked Questions

1. Can I be personally liable if my software causes financial losses to a client?

Yes, potentially. If you’re working as a sole proprietor or freelancer, you can be personally liable. Incorporating your business or obtaining professional indemnity insurance can help protect your personal assets.

2. Are electronic signatures valid in the Philippines for contracts?

Yes, under the E-Commerce Act (RA 8792), electronic signatures have the same legal effect as handwritten signatures, provided they meet certain requirements for authenticity and reliability.

3. How long should I keep NDA obligations after leaving employment?

This depends on your specific NDA. Typical durations range from 2-5 years after employment ends, but some information (like trade secrets) may be protected indefinitely.

4. Can I limit liability to zero in my contracts?

No, courts may find complete liability disclaimers unconscionable and unenforceable, especially for gross negligence or intentional misconduct. Reasonable limitations are more likely to be upheld.

5. What should I do if a client refuses to pay for completed work?

First, attempt negotiation and mediation. If unsuccessful, you may file a collection case in court. Having a clear written contract with defined deliverables and acceptance criteria strengthens your position.

Conclusion

Contracts and legal liability are inescapable aspects of professional computer engineering practice. While you cannot eliminate all risk, understanding the legal landscape and implementing proper safeguards can protect you from many common pitfalls.

Remember these key principles:

• Always use written contracts that clearly define obligations, deliverables, and limitations
• Include appropriate warranties, disclaimers, and liability limitations
• Protect confidential information rigorously
• Document everything throughout a project
• Consider professional indemnity insurance for significant exposure
• Consult lawyers for high-stakes agreements
• Stay informed about Philippine laws affecting your practice

As computer engineers in the Philippines, we operate in a complex legal environment shaped by the Civil Code, Intellectual Property Code, Data Privacy Act, Cybercrime Prevention Act, and other legislation. By understanding these laws and implementing sound contract practices, you can pursue your career with confidence, knowing you’ve taken reasonable steps to protect yourself and your clients.

Professional success in computer engineering requires more than technical skills—it demands legal awareness, business acumen, and careful risk management. Invest time in understanding contracts and liability, and don’t hesitate to seek professional legal advice when needed. Your career and financial security depend on it.

References

1. Rippling. (n.d.). Are NDAs Legally Binding in the Philippines? A Guide for Employers. Retrieved from https://www.rippling.com/blog/non-disclosure-agreement-in-philippines
2. Dulay Law Co. (n.d.). What is a Non-Disclosure Agreement (NDA) and When Should You Use It? Retrieved from https://www.dulaylaw.com/journal/what-is-a-non-disclosure-agreement-nda-and-when-should-you-use-it
3. Respicio & Co. (n.d.). Non-Disclosure Agreement (NDA) Breach in the Philippines: Elements, Remedies, and Damages. Retrieved from https://www.respicio.ph/commentaries/non-disclosure-agreement-nda-breach-in-the-philippines-elements-remedies-and-damages
4. Labor Law PH. (n.d.). Confidentiality or Non-Disclosure Agreements. Retrieved from https://laborlaw.ph/confidentiality-or-non-disclosure-agreements/
5. AIG Philippines. (n.d.). Professional Liability. Retrieved from https://www.aig.com.ph/home/risk-solutions/financial-lines/professional-liability
6. Chubb. (n.d.). Professional Indemnity Insurance in Philippines. Retrieved from https://www.chubb.com/ph-en/business/professional-indemnity-insurance.html
7. IBM. (n.d.). What Is an SLA (service level agreement)? Retrieved from https://www.ibm.com/think/topics/service-level-agreement
8. TechTarget. (n.d.). What is a service-level agreement (SLA)? Retrieved from https://www.techtarget.com/searchitchannel/definition/service-level-agreement
9. Pobrish Esq., J. (n.d.). The Distinction Between Warranty and SLAs. Retrieved from https://www.johnpobrienesq.com/the-distinction-between-warranty-and-slas/

Disclaimer: This article is for educational purposes only and does not constitute legal advice. Contract law and liability issues are complex and fact-specific. For specific legal concerns or important contracts, consult with a qualified attorney licensed to practice in the Philippines. Laws and regulations may change; always verify current legal requirements.

Article Length: Approximately 3,800 words

Target Audience: Computer Engineering students and professionals in the Philippines

Category: CpE Laws and Professional Practice

Tags: Contracts, Legal Liability, NDAs, Service Agreements, SLA, Professional Indemnity, Software Development Contracts, Computer Engineering Law, Philippines