Key Terms in Technology Contracts
You have found the perfect development partner, the ideal SaaS vendor, or the technology consultant who finally understands your business. The conversation has gone well, and now a contract appears in your inbox. It is dense, filled with defined terms, and spans dozens of pages. You know you should read it carefully, but where do you focus your attention?
Technology contracts govern some of the most critical relationships in modern business. They determine who owns the code a developer writes for you, what happens when software fails, and who bears responsibility when things go wrong. Getting these terms right protects your business. Getting them wrong can lead to lost intellectual property, unexpected liability, and costly disputes.
This guide breaks down the key terms every tech founder should understand before signing. Knowing what to look for helps you negotiate better deals and avoid common pitfalls.
What Makes Technology Contracts Different
These agreements share many features with other business contracts, but they present unique challenges. The subject matter is often intangible. Unlike a contract for physical goods, software, data, and intellectual property cannot be easily examined before the deal closes, making clear definitions essential.
Technology also evolves quickly. A contract signed today may govern a relationship that continues for years, during which conditions change dramatically. Good technology contracts include provisions that address this uncertainty.
Intellectual property sits at the heart of most technology transactions. Whether you are licensing software, commissioning development work, or accessing data through an API, IP ownership and rights determine the value you receive.
Intellectual Property Ownership Clauses in Technology Contracts
IP provisions are arguably the most important terms in any tech agreement. Confusion about ownership has derailed acquisitions, destroyed partnerships, and cost companies millions in litigation.
Work Product Ownership
When you hire a developer or consultant to create something for your business, who owns the result? In Canada, copyright in a work generally belongs to the creator unless the work was created by an employee in the course of employment. Without explicit contractual language, a contractor who builds your software might own the copyright in the code, even though you paid for the work.
Your agreements should explicitly address ownership. Common approaches include full assignment, where the contractor assigns all IP rights to you, and licence-back arrangements, where the contractor retains ownership but grants you broad licence rights. Full assignment is typically preferable for custom development core to your business.
Pre-Existing Materials and Third-Party Components
Contractors often bring existing tools, libraries, and frameworks to a project. These should not be assigned to you, but you need assurance that you can use and modify the deliverables that incorporate them. A well-drafted contract identifies pre-existing materials, grants you a licence to those materials as incorporated, and clarifies what you can do with them.
Modern software also incorporates third-party components, particularly open source libraries. Open source licences vary significantly. Permissive licences like MIT or Apache pose few concerns. Copyleft licences like GPL can create complications if they require you to release your own code under the same terms. Your contract should require disclosure of all third-party components and confirm their use does not impose unexpected obligations.
For more detail on how software licensing works, see our guide on software licensing agreements.
Limitation of Liability Provisions
Limitation of liability clauses cap the amount one party can recover if something goes wrong. These provisions are standard in technology deal terms and heavily negotiated in significant deals.
Liability Caps and Consequential Damages
A typical liability cap limits total damages to a multiple of fees paid, often the fees paid in the preceding twelve months. If a vendor's failure could cause business losses far exceeding the contract value, a standard cap may leave you underprotected. Pushing for higher caps or carve-outs makes sense in such cases.
Most tech agreements also exclude liability for consequential, incidental, indirect, special, and punitive damages, cutting off recovery for lost profits, lost business opportunities, and other downstream harms. Mutual exclusion of consequential damages is generally reasonable when both parties face similar risk profiles, but one-sided protection may be unfair if you are more dependent on the vendor.
Common Carve-Outs
Certain obligations are typically excluded from liability limitations, including breaches of confidentiality, IP indemnification claims, breaches of payment obligations, and gross negligence or wilful misconduct. The presence and scope of these carve-outs significantly affects risk allocation.
Warranty Provisions in Tech Contract Terms
Warranties are promises about the quality, performance, or characteristics of what is being delivered.
Performance Warranties
The most important warranty in a software contract is usually the performance warranty, an assurance that the software will perform substantially as described in the documentation for a specified period. Pay attention to scope and duration. A warranty that software will be "free from material defects" is broader than one promising it will "perform substantially as documented." Thirty days is common for warranty periods but may be insufficient for complex implementations.
Disclaimers and Remedies
Vendors typically disclaim implied warranties such as merchantability and fitness for a particular purpose. Warranty disclaimers are generally enforceable in B2B transactions in Canada, though courts may scrutinize them if the disclaimed warranty relates to the essential purpose of the contract. Ensure express warranties adequately cover your expectations.
Common remedies for warranty breach include repair or replacement, refund of fees, and termination rights. Include timeframes for warranty remedies and escalation rights if the vendor fails to cure within the specified period.
Indemnification in Technology Deal Terms
Indemnification clauses allocate responsibility for third-party claims. The most common indemnification in tech deals covers intellectual property claims, where the vendor agrees to defend you if a third party alleges the software infringes their IP rights.
IP indemnification should cover defence costs, not just damages. Watch for carve-outs that limit coverage, such as claims arising from your modifications to the software or combination with other products. These are reasonable but should not be so broad that they eliminate practical protection.
Review mutual indemnification carefully. An asymmetric arrangement that exposes you to broad claims while protecting the vendor narrowly shifts risk unfairly in their favour.
Confidentiality Terms
Confidentiality provisions protect information shared during the business relationship. Confidential information is typically defined broadly, with exclusions for information that is already public, already known, independently developed, or received from a third party without restriction.
The receiving party must protect confidential information using at least "reasonable care" and disclose it only to those who need to know. Confidentiality obligations should survive termination, with common periods ranging from two to five years and trade secrets receiving indefinite protection.
Service Level Agreements
For SaaS and hosted services, SLAs define vendor commitments regarding availability, performance, and support.
Uptime and Remedies
SLAs typically guarantee percentage uptime, often 99.5% or 99.9%. These numbers differ significantly: 99.9% uptime allows approximately 8.7 hours of downtime per year, while 99.5% allows about 43.8 hours. Clarify how uptime is measured and whether scheduled maintenance windows are excluded.
Most SLAs provide service credits when uptime falls below guaranteed levels. For mission-critical systems, consider negotiating enhanced remedies, such as termination rights if SLA failures exceed a threshold or recur. Response time commitments should define severity levels clearly and specify remedies if targets are missed.
Termination Rights
Both parties should have the right to terminate if the other materially breaches the agreement and fails to cure within a specified period, typically 30 days. Termination for convenience allows exit without cause, but review what you owe upon early termination, as some contracts require payment of remaining contract value.
When the contract ends, key issues include data return and portability, transition assistance, and survival of obligations. For SaaS relationships, ensure clear rights to export your data in a usable format.
Dispute Resolution
The governing law clause specifies which jurisdiction's law applies, and the jurisdiction clause specifies where disputes will be heard. For Canadian businesses, contracting under Canadian law and submitting to Canadian jurisdiction is generally preferable.
Many tech agreements require arbitration rather than litigation. If you agree to arbitration, review the applicable rules. Institutional arbitration through organizations like the ADR Institute of Canada provides established procedures, while ad hoc arbitration may be less predictable.
For guidance on when disputes arise and what options you have, see our post on when you need a contract lawyer in Canada.
Acceptance, Delivery, and Change Orders
For custom development projects, acceptance criteria should be specific and measurable, tied to objective tests rather than vague standards. Watch for deemed acceptance provisions that treat deliverables as accepted if you do not object within a specified period.
Technology projects frequently require changes after the initial scope is defined. In any software development agreement, a clear change order process prevents scope creep. Change orders should be requested in writing, evaluated for impact on timeline and cost, approved by both parties before work begins, and documented as amendments. Ensure you have visibility into the cost impact before approving changes.
Conclusion
Technology contracts govern relationships that can define your business success. The terms you agree to determine who owns what, who bears risk when things go wrong, and what recourse you have if the relationship fails to deliver expected value.
The key provisions to scrutinize include IP ownership and assignment, limitation of liability, warranties and disclaimers, indemnification, confidentiality, service levels, termination rights, and dispute resolution. Understanding these terms is the first step. Negotiating them effectively requires knowing what is standard, what is negotiable, and what trade-offs make sense for your situation.
Have questions about a technology agreement? Whether you are signing a vendor contract, commissioning custom development, or licensing your own products, professional review can identify risks you might miss. Contact Clearview to discuss your needs.