Navigating Technology Contracts: Risks Every Business Should Consider

Whether developing SaaS platforms, building or integrating AI driven tools, or launching industry specific solutions, technology companies face unique contracting challenges. Such challenges are rarely solved by using out of date or standard commercial terms or by instructing legal expertise after deals have been completed.

Engaging a solicitor early (before commercial terms are locked in or outdated contract wording is reused) can help shape contracts that reflect the company’s actual risk profile, growth plans, and operational realities. Waiting until after a deal is agreed on or completed, or a problem arises, often means legal input is limited to damage control.

Legal considerations are wide-ranging in any commercial contract, but certain clauses take on particular significance in technology contracts due to the nature of the services and risks involved.

Intellectual property rights:

There is an inherent risk in underestimating the complexity of intellectual property rights and their protection. In the technology sector, intellectual property is often the company’s most valuable asset, yet contracts frequently fail to define adequately what intellectual property is, its ownership, licensing terms, or usage rights with sufficient clarity. Technology companies must ensure their contracts protect core intellectual property while allowing for innovation and collaboration, this includes in respect of AI generated content.

Data protection:

Data protection is another key risk area for technology companies. They routinely handle large volumes of personal data, often across borders. Contracts must clearly and consistently reflect the requirements of all applicable data protection laws, including robust data processing terms, audit rights, breach notification obligations and data subject rights. As new technology contracts are entered into, maintaining compliance requires ongoing attention to applicable laws, not only how obligations may have changed but also how they apply to the company’s data processing.

Liability and indemnity clauses:

These clauses deserve careful attention. Many technology companies, especially in their start-up stage, accept aggressive and unfavourable terms to close deals quickly and to secure new clients. But as the client base matures, so too does the risk appetite. Contracts should reflect this, with sensible caps on liability, exclusions for certain losses, and indemnities that are proportionate to the actual risk. A one-size-fits-all approach rarely works for technology contracts, where the nature of services and potential exposure can vary dramatically.

Service levels and uptime commitments:

For technology companies offering, for example, hosting and data centre services, SaaS or cloud-based services, service levels are more than operational metrics; they are contractual promises. Clients expect clarity around uptime obligations, response times, and remedies for service failures. Contracts should reflect realistic performance standards and include mechanisms for monitoring and addressing breaches. Overpromising or failing to define these terms can expose a technology company to reputational and financial risk.

Change control mechanisms:

Technology services rarely remain static, whether due to client requests, product evolution, regulatory shifts or changes to scope or functionality. Technology contracts should include clear change control procedures to manage these developments without derailing delivery or creating ambiguity. This helps preserve commercial relationships and ensures that the parties remain aligned as services evolve.

Escrow arrangements:

Where software is critical to a client’s operations, the client may seek assurance that it can continue using the software if the software technology company ceases trading or withdraws support. Escrow provisions (where source code is held by a third party) can offer that reassurance. While not always necessary or commercially agreeable, they are worth considering in high-value or bespoke software arrangements, particularly where continuity is essential to the client’s operations.

Termination rights and exit planning:

Termination clauses are often overlooked until it’s too late. In technology contracts, they should be drafted with care to allow for orderly disengagement, especially where data, integrations, or ongoing services are involved. Provisions for transition assistance, data return or deletion, and post-termination obligations help manage risk and protect client relationships during exit.

Third-party dependencies:

Many technology solutions rely on third-party platforms, APIs, or hosting providers. These dependencies can introduce risk if not properly addressed in the contract. Clauses should clearly allocate responsibility for third-party failures, set appropriate limitations of liability, and define any restrictions on use or integration. This promotes transparency, manages client expectations and reduces the risk of contractual disputes.

Audit and monitoring rights:

Clients and regulators increasingly expect visibility into how services are delivered and how data is handled. Audit rights allow for verification of compliance with contractual and legal obligations, especially in regulated sectors. These clauses should be proportionate and clearly scoped to avoid operational disruption while maintaining accountability.

Cybersecurity obligations:

Minimum security standards, incident response protocols, and, where appropriate, insurance requirements should be considered. This is particularly important where services involve personal data, critical infrastructure, or cross-border operations. Well-drafted cybersecurity clauses help build trust and reduce exposure to breach-related claims.

Artificial intelligence considerations:

As AI adoption accelerates, AI risk allocation is becoming increasingly relevant in contracts, which should clearly limit liability for AI outputs, particularly where data bias could lead to inaccurate or discriminatory results. Transparency obligations and clear usage terms should also be considered, supported by protective warranties and restrictions to prevent misuse or association with harmful practices.

Technology contracts should reflect the company’s needs. What is suitable for a start-up company is unlikely to be appropriate for a more established company. Contracts should be reviewed regularly, not just when something goes wrong. This will help identify any misalignment in contractual obligations as against day-to-day service provision and ensure ongoing compliance, spotting risk exposure and being prepared for future contract renewal or termination.

In short, contracting in the technology sector isn’t just about legal compliance; it’s about creating a strategic advantage, enabling growth, managing risk, and building trust.