10 Essential Clauses for IT Contract Negotiations

10 Essential Clauses for IT Contract Negotiations: Part 1

Contracts represent an agreement between two or more parties, outlining expectations, service levels, and providing clear pathways to conflict resolution, continuance, or exits. In the case of IT contract negotiations, the details are even more critical, as failure to provide services could result in non-compliance, costly downtime, or a poor user experience.

Today, we’ll outline numbers one through five of ten essential clauses that should be included in all IT contracts.

Essential Clauses to Include in all IT Contracts

1. Confidentiality Clause
Including a confidentiality clause in your IT contracts is vital as it could put your intellectual property or trade secrets at risk.

Elements of a confidentiality clause include the following:

• Identify the parties involved
• Defining what is confidential
• Defining exclusions
• Scope of confidentiality
• Term of the agreement

 

2. Termination Clause
A termination clause outlines who can cancel the contract and under what conditions they may do so.

Common elements of a termination clause include:

• The conditions under which termination can be initiated
• Who can terminate (mutual or one-sided)
• The amount of time (notice) to be provided and under what conditions
• Scenarios in which immediate termination is warranted (breach of confidentiality, etc.)

 

3. Limitation of Liability Clause
The limitation of liability clause details the circumstances in which the provider is liable for damages to the customer and the maximum amounts to be paid. Most clauses will also include limitations to address circumstances beyond the provider’s control. It’s critical to consider what’s reasonable so that the clauses are enforceable.

The key points of a limitation of liability clause include:

• Defining circumstances for which the provider is liable or not liable (design defects, performance, security, etc.)
• Liability exclusions
• Financial caps (intellectual property breaches should not be capped)

 

4. Service Level Agreement (SLA) Clause
A service level agreement (SLA) outlines the level of service expected from the provider. It should also detail the metrics or performance indicators by which services are measured and what penalties will be enforced if the agreement is breached.

The elements of an SLA clause may include:

• Description of services provided
• Definition of minimum service levels for each item
• How service levels are to be measured
• Responsibilities of each party
• Exclusions or scenarios that do not constitute a breach (such as if the vendor was not notified of an issue in a timely manner)
• Mechanisms for reparation or remediation

 

5. Dispute Resolution Clause
A dispute resolution clause is generally designed to reduce the risk of litigation and help the parties solve disputes using less contentious methods before resorting to more extreme tactics.

The most critical elements of a dispute resolution clause include:

• The country’s or region’s laws under which the agreement is governed
• Who is permitted to make decisions regarding disputes
• Options for resolution and what circumstances they may be used (i.e., litigation, arbitration)
• Steps to be taken before escalating the conflict to the next level

Final Thoughts

We hope you have gained value from this article! When you’re ready for more, hop over to Part 2 to discover numbers 5 through 10 of our Ten Essential Clauses for IT Contract Negotiations.

 

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