Nine Essential Clauses for IT Contract Negotiations: Part 2

Welcome to Part 2 of our series outlining nine essential clauses to include in IT contract negotiations. In part one, we covered five critical points, which we welcome you to review if you have not yet done so.

IT is a vital aspect of any organization’s success and profitability. Considering the consequences that could ensue if your IT systems failed, we cannot stress enough the importance of having a well-written, legal, and binding contract that ensures expectations and compliance concerns are met under all circumstances.

Please refer to these documents when developing your IT contracts, as they may help you reduce organizational risk and avoid costly disputes in the future.

Essential Clauses to Include When Negotiating IT Contracts

6. Intellectual Property Clause
Your intellectual property includes trade secrets, trademarks, patents, copyrights, unique products, services, and content you have created and that the company owns. The intellectual property clause should detail what rights are granted or not to ensure the owner’s rights are protected.

The considerations of an intellectual property clause in an IT contract should include:

Modifications to the intellectual property
Sub-licensing
Reverse engineering
Limitations and exclusions (such as allowing for a certain number of backup copies)
Circumstances under which permissions to use the IP are granted

7. Payment Clause
The payment clause defines the terms around your payment agreements with the vendor. Ultimately, your relationship is a business arrangement and, as such, requires financial remuneration. The frequency, amount, and circumstances under which the terms may change can all be outlined here.

IT contract payment clauses should include:

Currency in which payment is to be made
Invoicing details (such as when invoices will be issued vs. the billing date)
The frequency of payments (monthly, weekly, yearly, etc.)
Options for payment (check, credit card, automatic debit, bank draft, etc.)
Services included in the payment
Grace periods for late payments (if any)
Interest to be charged on late payments
Terms of service termination in case of non-payment

8. Assignment Clause
An assignment clause outlines the circumstances under which a vendor can transfer the contract to a third party or whether they can do so at all. There are many considerations here, so it’s vital to consider every potential scenario, including assignment to your competitors.

Some things to consider for assignment clauses in IT:

Will you allow an assignment?
Under what terms is assignment acceptable?
What happens if the vendor goes out of business or merges with another company?

9. Governing Law Clause
Governing law informs most other contractual bonds and dispute resolution aspects, including intellectual property rights.

Essentially, the governing law clause outlines the region or country’s laws that have jurisdiction over the agreement and will be used to interpret the contract and hear or file any disputes.

In IT scenarios, this is critical as servers, and backup infrastructure may be located in other jurisdictions. Hence, it is vital to detail legal governance, so there is no ambiguity arising from these details.

Final Thoughts

Negotiating an IT contract is a nuanced business! Many details should be interpreted, discussed, and established before moving forward. As your company grows and takes on more IT partners, well-written vendor contracts strengthen your foundations as you scale.

Book a call today to learn how we can help.