Key tips for negotiating technology and IT contracts

Many technology disputes arise not from ‘bad’ tech, but from unclear expectations. 

Poorly defined scope can stall projects or derail transformation initiatives. Ideally, suppliers and customers should approach technology transactions and procurement processes with shared objectives and work collaboratively to achieve successful delivery, long-term value, cost certainty and objective performance and service levels that match the sales meeting, tech demo and shiny brochure promises. 

Contracts should include clearly defined deliverables and milestones aligned with business requirements for operational readiness and rollout. This helps ensure both parties share a clear understanding of what will be delivered and when.

Suppliers should ensure contracts clearly define functionality, integrations, environments, third‑party dependencies and any key assumptions. Customer obligations should also be clearly specified, including the provision of resources, access, and data. 

A practical change control process is also critical to ensure additional work is properly priced and approved, rather than assumed. Effective change management helps protect allocated budgets, prioritise value and avoid disputes.

Customers should also ensure contracts contain objective acceptance criteria and processes, including clear timeframes for testing, acceptance or rejection. 

Ownership and rights to use intellectual property should always be clearly addressed. 

The intellectual property (IP) in business-critical technology platforms can be a highly valuable asset, particularly in the event of a future sale, investment or exit. IP rights also provide flexibility to scale your business or even switch vendors. 

Suppliers often rely on proprietary code, tools, and methodologies. Contracts should explicitly confirm that this background IP remains with the supplier, and that the customer receives an appropriate licence. Typically, this licence is limited to the extent required for the customer’s internal business use of the services or deliverables.

Where software or deliverables are integral to business operations, customers should ensure IP licences are broad enough for future plans. This may include the ability to sell, transfer, assign or sublicence rights.

If bespoke deliverables are created, customers should consider whether ownership of the resulting IP is appropriate, or at a minimum, ensure they receive an irrevocable and perpetual licence. Customers should also closely review warranties to ensure deliverables do not infringe third-party IP. 

Technology should perform reliably, but contractual obligations should remain clear and measurable. 

Robust warranties help ensure the technology performs as intended and supports customer experience and brand reputation. However, suppliers should avoid open-ended warranties without appropriate qualifications, as these may expand liability. Instead, limit warranties to objectively verifiable criteria. 

For ongoing services, ensure service level agreements (SLAs) are specific and achievable. This includes clearly defined metrics for uptime, response time and resolution times.

Customers should ensure the supplier warrants that the technology will comply with specifications, operate materially free from defects and not infringe third-party IP. 

For ongoing services such as SaaS or managed services, SLAs should align with business needs and be tied to meaningful service credits that are sufficient to drive performance without being punitive. 

Technology failures can cause significant commercial and operational harm, so risk allocation is a key aspect of technology contracts.

Liability caps are common in technology agreements and are often heavily negotiated. The objective is to allocate risk fairly between parties while considering insurance coverage and potential exposure. 

Suppliers typically seek liability caps proportionate to fees and risk exposure. They often expressly seek to exclude indirect or consequential loss, including with respect to loss of profit, revenue or data.

Customers, on the other hand, may seek higher liability caps for issues such as data loss, security breaches or IP infringement. In some cases, they may seek uncapped liability for certain risks. Customers may also resist broad exclusions for consequential loss, particularly where losses could reasonably include loss of profits for business-critical technology.

To find a middle ground, it is often useful to structure liability positions that account for business criticality and data sensitivity.

Overly aggressive risk positions that are not tied to key business risks and matters within the relevant party’s control have the potential to increase costs and even reduce engagement in negotiations (as well as potentially breach unfair contract terms legislation for standard form contracts under Australian Consumer Law). 

With increasing cyber security risks and evolving privacy law reforms, data protection is a critical consideration in technology contracts.

Customer data is often central to business models and sales. Data breaches can damage brand reputation, undermine customer trust and lead to operational downtime, resulting in financial damage and regulatory scrutiny.

Where technology solutions or related services involve handling, collection, storage or use of data that includes personal information, both parties must ensure compliance with the Privacy Act 1988 (Cth). Contracts should clearly address how breaches will be managed and notified.

Suppliers should be specific regarding security standards, tying obligations to reasonable industry benchmarks aligned with their operational environment.

Where technology solutions involve offshore data hosting or subcontracting, customers should carefully verify where the data will be stored and how it will flow between systems. They should also ensure the supplier’s obligations are passed through to subcontractors. 

Privacy consents are also key to ensuring all future uses and partnerships that may contemplate the transfer of valuable data are permitted, and privacy policies should be reviewed accordingly. 

One of the most overlooked aspects of technology contracting is planning for the end of the relationship. Whether a contract is expiring, a product is underperforming or a supplier is failing to meet agreed service levels, the ability to exit cleanly and efficiently is essential to protecting business continuity.

Termination rights should be clearly defined and go beyond standard breach and insolvency triggers. Customers should consider whether the contract includes: 

• termination for convenience (with appropriate notice)
• termination for persistent or material service level failures, and
• step-in rights that allow the customer to assume operational control in critical scenarios. 

Without these provisions, customers may find themselves locked into underperforming arrangements with limited practical recourse.

Suppliers should ensure that termination provisions are fair and proportionate. Termination triggers should clearly distinguish between material and minor breaches, and suppliers should negotiate reasonable cure periods and escalation mechanisms to avoid disproportionate outcomes.

Transition assistance is a critical but often underdeveloped area of technology contracts. Contracts should require the outgoing supplier to provide reasonable transition support for a defined period following termination or expiry, including data migration, knowledge transfer and continued access to systems during the handover. Without robust transition provisions –  including cost certainty – customers risk significant operational disruption, data loss or being forced to remain with a supplier simply because switching is too difficult or costly.

Data extraction and portability should also be addressed, as this can often be an expensive hidden additional cost. Customers should ensure they have the right to extract their data in a usable, industry-standard format at any time, and particularly on expiry or termination. Suppliers should clarify their obligations regarding data retention, return and destruction following termination.

In the Australian context, it is also worth noting that the Unfair Contract Terms regime under the Australian Consumer Law (which now carries civil penalties) may affect termination clauses in standard form contracts, particularly where they create a significant imbalance in the parties' rights and obligations. Both suppliers and customers should be alive to this risk when drafting and negotiating exit provisions.

If you would like assistance with technology contracts, procurement or managing risk in technology projects, please get in touch with our Technology team.