AI vendor contracts are where hype meets legal reality. The promises made in sales presentations face the test of what’s actually contractually committed. Here’s how to negotiate contracts that protect your interests.

The Clauses That Matter Most

Data Rights and Usage

What to look for: Clear statement that your data belongs to you and won’t be used to train the vendor’s models without explicit consent.

Standard vendor position: Vague language that permits data use for “service improvement” – which can include model training.

What to negotiate:

• Explicit prohibition on using your data for model training
• Clear data handling and deletion requirements
• Right to audit data handling practices
• Geographic restrictions on data processing

Leverage points: Enterprise customers have leverage here. Consumer terms often permit broad data use; enterprise terms should be stricter.

Service Levels and Availability

What to look for: Specific, measurable uptime commitments with meaningful remedies for failure.

Standard vendor position: Aspirational availability targets with minimal consequences for missing them. Service credits that amount to a small percentage of fees.

What to negotiate:

• Specific uptime percentages (99.9% vs 99.5% matters for critical applications)
• Response time guarantees for support
• Meaningful service credits for outages
• Termination rights for sustained underperformance

Leverage points: Negotiating power increases with contract value. High-value customers can demand better SLAs.

Performance Guarantees

What to look for: Specific, measurable performance commitments relevant to your use case.

Standard vendor position: No performance guarantees. Demos are impressive; contracts guarantee nothing.

What to negotiate:

• Specific accuracy or performance metrics for your use case
• Benchmark testing with your data before commitment
• Right to terminate or renegotiate if performance degrades significantly
• Change notification if model versions affecting your use case are modified

Leverage points: This is where proof-of-concept results provide leverage. Documented POC performance creates a baseline for contract commitments.

Pricing and True-Up

What to look for: Clear pricing with predictable costs and reasonable protection against price increases.

Standard vendor position: Complex pricing that makes true costs hard to predict. Aggressive price increase rights at renewal.

What to negotiate:

• Caps on annual price increases (5-10% is reasonable)
• Volume discounts that kick in automatically
• True-up terms that are fair to both parties
• Clear definition of what triggers additional charges

Leverage points: Multi-year commitments provide leverage for pricing protection. Willingness to commit gives you negotiating power.

Intellectual Property

What to look for: Clear ownership of any outputs, customisations, or models created from your data.

Standard vendor position: Vendor retains broad IP rights, including to derivative works created using your data.

What to negotiate:

• Clear customer ownership of outputs generated using your data
• Ownership of any fine-tuned models trained on your data
• Rights to training data and processes you provide
• Clear IP assignment for custom development

Leverage points: Custom development work creates more IP negotiation opportunity than standard usage.

Exit and Transition

What to look for: Clear exit rights and support for transitioning away from the vendor.

Standard vendor position: Contract termination ends your access. No obligation to support transition.

What to negotiate:

• Data export in usable formats upon termination
• Reasonable transition period after notice
• Assistance with migration to alternatives
• Clear retention and deletion timelines post-termination

Leverage points: Negotiate exit terms at contract start, when you have leverage. Negotiating during exit is much harder.

Standard Traps to Avoid

”Unlimited” Usage with Hidden Limits

Contracts that claim unlimited usage but bury restrictions in fair use policies or acceptable use terms.

Protection: Ensure usage terms are specific. If you need 10 million API calls monthly, make sure the contract clearly permits that.

Auto-Renewal with Price Increases

Contracts that auto-renew at significantly higher rates unless you provide notice months in advance.

Protection: Negotiate reasonable notice periods (30-60 days, not 90-180). Cap price increases at renewal. Set calendar reminders.

Unilateral Terms Changes

Vendors reserving the right to modify terms by posting updated versions on their website.

Protection: Require that material changes be communicated directly and give you the right to terminate if changes are unacceptable.

Indemnification Gaps

You indemnifying the vendor broadly while they provide narrow indemnification to you.

Protection: Balance indemnification obligations. Ensure vendor indemnifies for IP infringement and data breaches resulting from their negligence.

Limitation of Liability Asymmetry

Vendor liability capped at fees paid while your liability is unlimited.

Protection: Apply similar liability caps to both parties. Carve out specific scenarios (data breach, IP infringement) from general caps.

Negotiation Process Tips

Read Before You Sign

This seems obvious but is often skipped. Enterprise AI contracts deserve careful legal review. The cost of legal review is far less than the cost of problematic contract terms.

Mark Up First Draft Aggressively

Your first response should push for strong customer-favorable terms. You can negotiate back from there. Starting with modest requests leaves money on the table.

Use Competition

Having alternatives – even if you prefer one vendor – provides negotiating leverage. Let vendors know you’re evaluating competitors.

Focus on What Matters

You can’t fight every battle. Identify the 3-5 terms that matter most for your specific situation and prioritise those.

Get Commitments in Writing

Verbal promises from sales teams don’t count. If it matters, it should be in the contract.

Involve Procurement and Legal Early

Don’t negotiate for months only to have procurement or legal raise issues at the end. Involve them from the start.

When You Have Less Leverage

For smaller contracts or standard products, negotiating power is limited. Focus on:

• Understanding what you’re agreeing to
• Ensuring data protection basics are covered
• Planning for exit from the start
• Accepting standard terms only when truly standard

If you’re a small customer for a major vendor, extensive negotiation isn’t realistic. But understanding the terms is still essential.

Final Thought

AI vendor contracts deserve the same rigour as any significant technology commitment. The technology is novel; contracting principles aren’t.

Protect your data. Secure meaningful commitments. Plan for exit. Use leverage where you have it.

The time invested in good contracts pays returns throughout the relationship – and especially when things go wrong.