Call Lipp Law: (703) 896-7704
Call Lipp Law: (703) 896-7704
A software subscription, a custom development project, and a major technology implementation can expose a business to very different risks.
These agreements can govern much more than the price of a product or service. They may determine who owns valuable intellectual property, what happens to your company’s data, who bears the cost if something goes wrong, whether the vendor can increase its prices, and how easily your business can get out of the relationship.
Often, the vendor sends over its “standard agreement” and asks you to sign. But “standard” does not necessarily mean favorable to your business—or appropriate for the particular deal.
Before signing a significant technology contract, businesses should consider having the agreement reviewed—and, when appropriate, negotiated.
Here are 10 terms business owners should review before signing.
Start with one of the most basic questions: What exactly are you paying for?
A technology agreement should clearly identify the products or services the vendor is providing and, where applicable, the specific deliverables expected.
Depending on the relationship, the contract may need to address:
Ambiguity at the beginning of a technology project can become expensive later.
For larger implementations or development projects, businesses should also pay close attention to the relationship between the Master Services Agreement (MSA) and individual Statements of Work (SOWs). The documents should work together, and the agreement should say which one controls if their terms conflict.
The price on the first page of the proposal may not tell the whole story. Businesses should understand not only the initial cost, but also how pricing can change during the relationship.
For example:
For multi-year agreements, even a seemingly modest annual increase can become significant.
Automatic renewal provisions deserve particular attention.
A contract may begin with a one-year term but automatically renew for another year—or several years—unless the business provides notice within a specific window.
Businesses should understand:
A missed notice deadline can leave a business paying for technology it no longer wants or needs. Calendar the deadline and check whether the contract requires notice through a particular address, portal, or delivery method.
What happens if the relationship simply does not work?
Some vendor agreements give the technology provider broad termination rights while severely limiting the customer’s ability to walk away.
Consider whether the agreement permits termination:
The contract should also explain what happens after termination, including outstanding fees, transition assistance, access to company information, and return or deletion of data.
If your company provides proprietary information to a technology provider, the contract should address who owns that information and what the provider may do with it.
Questions to consider include:
Businesses should be particularly careful about granting technology providers rights to use company information beyond what is reasonably necessary to provide the contracted services.
A confidentiality clause alone may not adequately address the risks associated with sensitive business information.
Depending on the nature of the technology and the information involved, a contract may need to address security standards, incident response, notification requirements, subcontractors, data storage, access controls, and other safeguards.
A business should understand what the technology provider is promising to do—and what happens if those protections fail.
For certain transactions, a separate data processing or security addendum may also be appropriate.
Intellectual property provisions can be particularly important when a vendor creates something specifically for your company.
Suppose your company pays a developer to create custom software, an integration, a website feature, or another technology solution.
Who owns the finished product, and who can use it in the future?
The answer may not be what the business expects.
Technology agreements often distinguish between the vendor’s pre-existing intellectual property and new materials developed during the engagement. Businesses should understand what they will own, what the vendor will own, and what each party merely has a license to use.
Payment alone does not settle copyright ownership. If your company needs to own custom work, the agreement should address a written assignment and the license needed to use any vendor-owned components incorporated into it.
What has the vendor actually promised about how its product or service will perform?
Some technology agreements contain extensive warranty disclaimers while providing very few meaningful commitments from the vendor.
Depending on the transaction, businesses may want the agreement to address matters such as:
For mission-critical technology, service-level commitments – that is, the amount of time the technology will be available and at what quality – can be particularly important.
These provisions can dramatically change the financial risk associated with a technology agreement.
An indemnification provision generally addresses circumstances in which one party must protect or reimburse the other for certain third-party claims or losses.
A limitation of liability provision, meanwhile, may cap the amount a party can recover if something goes wrong.
These clauses should be reviewed together. Check whether the liability cap applies to intellectual property claims, data-security incidents, confidentiality breaches, and indemnification obligations.
For example, a vendor may seek to limit virtually all its liability to the amount your company paid during a short period—even if the potential harm to your business could substantially exceed that amount.
The appropriate allocation of risk depends on the transaction. A $5,000 software subscription and a six-figure enterprise technology implementation should not necessarily be treated the same way.
Finally, businesses should understand what happens if the parties cannot resolve a disagreement.
Technology contracts frequently specify:
A Virginia business may think twice before agreeing that every dispute must be litigated or arbitrated across the country under another state’s law.
These provisions can seem unimportant when everyone is excited to start a new business relationship. They become much more important when the relationship breaks down.
Should You Have a Technology Contract Reviewed Before Signing?
Not every technology purchase requires extensive legal negotiations, but the stakes increase when an agreement involves significant financial commitments, a long contract term, sensitive company or customer data, custom development, important intellectual property, or technology your business will depend on for its operations.
And the best time to identify a problematic contract provision is usually before you sign it. The goal is to identify the provisions that create meaningful risk for your particular business, determine which issues matter most, and negotiate where doing so makes business sense.
Lipp Law Helps Businesses Review and Negotiate Technology Contracts
Lipp Law works with businesses on commercial and technology agreements, including reviewing, drafting, redlining, and negotiating contracts.
We can help businesses identify significant contractual risks, prioritize proposed revisions, prepare redlines, and negotiate contract terms with vendors and other parties.
Whether your company has received a vendor’s proposed technology agreement or needs an agreement drafted for its own products or services, our attorneys can help you evaluate the contract before it is signed.
Have a software or technology contract you would like reviewed? Contact Lipp Law to discuss how we can help.
This article is provided for general informational purposes only and does not constitute legal advice. Reading this article does not create an attorney-client relationship. The appropriate contract terms depend on the particular transaction, parties, and applicable law.
Katie dedicates her practice to employment separation guidance.
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