Floating Terms in Vendor Contracts: Cloud Services, Software Licenses, and Communication Agreements

This CLE course will discuss the myriad risks with "floating" vendor contracts for businesses. The panel will discuss why floating contracts are dangerous and best practices for businesses to mitigate the risk of vendors unilaterally changing key terms of their agreements. These issues arise in almost every type of technology contract, from cloud services to software licenses to telecommunications agreements and agreements involving AI-enabled products and services.

In many modern vendor engagements, both the customer's data and several key areas of the vendor contract are stored in the cloud, including provisions on service level standards, security measures, support obligations, and service descriptions, as well as data processing terms, acceptable use policies, subprocessor lists, product-specific terms, and documentation governing functionality.

This means that key contract terms "float" in the cloud and can be changed at any time by the vendor, frequently without notice to the customer. Even if the customer is given notice, the customer often has no right to object to the changes. Those changes may additionally impact data use rights, security requirements, available functionality, and the introduction of AI-enabled features.

Other challenges of floating contracts include their "as-is" nature, making them less susceptible to negotiation; the risk that the vendor will reduce or alter key functionality or performance during the contract term; and the customer's limited ability to terminate the agreement, even if key terms change to its disadvantage.

Negotiating floating contracts is extremely difficult. Approaches to mitigate risks include requiring the floating terms to be in writing and attached to the agreement as actual, fixed exhibits, including language that the vendor cannot materially decrease the overall levels of performance and functionality reflected in the floating terms as of the date the contract is signed and negotiating clear termination rights in the agreement.

Listen as our authoritative panel discusses best practices for mitigating risks to businesses entering "floating" engagements and practical approaches to reviewing, negotiating, and monitoring incorporated online terms throughout the vendor relationship.