Five key areas of contention in technology contracts (and how best to avoid them)

Lisa R. Lifshitz, Partner at Torkin Manes LLP and Chair of the firm’s Technology and Privacy/Data Management Groups, Toronto, Ontario. Prepared for the 2026 ITechLaw World Technology Law Conference, held May 13–15, 2026, in Chicago, Illinois.

No party enters into a business deal thinking (or hoping) that it will end in litigation. Despite best efforts and intentions, disputes will arise in any commercial relationship – the only question is whether the contract the parties signed anticipates these scenarios and gives them the best opportunity and advantage to resolve them. The below is a summary of five business and legal areas of contention in technology contracts and suggested best practices to mitigate them.

1. Project Misalignment/Technical Misalignment. Mismanaged expectations of the parties is probably one of biggest factors in contract failure. This misunderstanding can arise from a failure of the client to fully understand the limitations of the technical capabilities of the vendor’s products and services. More insidiously, bad vendors may inflate or even invent their products/services’ capacities to win the deal. This can happen in procurements, where one part of the organization responds to a particular bid solicitation without adequately involving the actual personnel who will be delivering the promised solution and really know what it can do. Vendors also sometimes dangle considerable financial incentives to close deals quickly or prior to internal deadlines, such as year end. During this “honeymoon phase”, there is often incredible business pressure on the parties to just “get it done”, so that business teams can make that exciting public announcement and generate favourable publicity. None of this augers well for the ultimate success of the deal. In practice and prior to contract execution, the client should take the necessary time to conduct sufficient due diligence on their chosen vendor to fully understand their product/service performance capabilities and ensure they meet the clients’ functional requirements (such as ease of use, scalability, pricing, etc.) and any regulatory requirements. Key client stakeholders (including IT, marketing, HR as applicable) should also be involved in the pre-contract stage if they are the ultimate end-users of the products/services. There is also value in the client contacting and speaking to vendors’ references to gain a better understanding of the lessons learned from other users of the vendors’ products and services, warts and all. Parties should invest adequate time in the negotiation phase to ensure mutual understanding of key obligations, deliverables, and performance expectations.

The legal agreement should also ensure that the contract tightly scopes the client’s technical and business requirements and expected performance measures/outcomes in a manner that allows each party to determine whether the commitments in the contract are being fulfilled. Often these details are left to a statement of work (“SOW”). There is a tendency to treat these as an afterthought without sufficient time allocated to the preparation of these critical operational documents or to leave the hard scoping details of the project to a follow-on phase in the SOW itself rather than take the time at the outset to get the parties on the same page upfront. Additionally, legal counsel is often excluded from this review and scoping process, which is an error, since such documents may either contain clauses that override the main body of the master services agreement or fail to contain sufficient detail to cover the parties’ business deal. The takeaway here is that it is absolutely critical for the parties to leave enough runway time to fully document their project expectations in their legal agreements, especially statements of work, avoiding ambiguous language.

2. Changes in scope / scope creep / excessive change requests. These concerns may arise as a result of both client and vendor behaviour. Clients who failed to adequately align internally and capture key stakeholder considerations in their procurement documents / contracts may suddenly demand changes in the deal scope when they realize they hadn’t captured the full picture of their requirements, which can certainly result in project delays. On the vendor side, vendors may take advantage of high level, vague language in SOWs that lack sufficient detail to demand multiple change requests / change orders to produce key project deliverables and services that will also certainly result in overall price increases. Change request processes tend to be fairly discrete, and some clients prefer the ease of green-lighting change orders, even at an additional cost, in order for forestall dispute with the vendor and protect tight project deadlines. However, it serves both parties to keep a tight rein on change requests by ensuring that contracts contain sufficient internal governance and informal dispute resolution mechanisms that allow the parties to actually deal with the source of the business disconnect and to minimize these procedures. If the parties find themselves awash in change requests / change orders, it is a clear sign that the existing statement of work / purchase order is not working as intended and, in such instance, the relevant documents should be formally amended or restated to get the parties back on the right track and forestall payment surprises.

3. Service levels / Service level failures. Service levels are critically important in contracts, especially those involving technology. They establish measurable performance standards and help ensure vendor accountability. They can also act as “bright lines” as ongoing failures to meet promised levels (even those couched as “objectives”) can signal deeper vendor issues, including technical vulnerabilities, insufficient or inexperienced vendor personnel, business distress, etc. However, there is an increasing tendency these days for vendors to present one-sided generic service levels with overly complex calculation formulas that will result in clients seldom receiving any actual service credits (which are often disproportionally low, anyway). Some vendors also insist that service level credits may be the only remedy available for non-performance, but this will result in endless misery for clients. Especially in larger deals, the parties should allocate appropriate time to negotiate service levels aligned with the clients’ actual business needs, along with tiered remedies for service level failures, including active remediation efforts, governance discussions, root cause analysis efforts and reports, corrective plans and yes, meaningful credits that are relatively straightforward for the client to obtain. Credits should never be a client’s exclusive remedy, and it is strongly suggested that the parties agree in advance upon  clear, tightly scoped service level termination events (which will vary from deal to deal) based on repeated service level failures / remediation failures over delineated time periods to allow for a timely exit by the client (and avoid interminable arguments over having to prove material breach) when the vendor is unable to deliver what was promised.

4. No governance provisions. Lack of vendor-client communication is a critical problem in many business relationships, and to streamline and shorten contracts, many contracts, including those for larger acquisitions, fail to include formal contract mechanisms to address it. Big mistake. Large or significant technology contracts should always include multiple and established checkpoints and check-ins for dialogue during the life cycle of the contract. At the beginning, this could include steering committee / technical committee meetings to get the project moving and thereafter, ongoing governance / technical committees at the cadence that makes sense to the parties. The contract should also include specific a bi-annual or an annual executive meeting to give the parties opportunities to discuss, head off and mitigate pain points before they become critical. 

5. Limitation of liability / Indemnification. Limitation of liability and indemnity clauses are almost always two of the most contentious areas of contract negotiations. Often these clauses are poorly drafted and literally reciprocal, even though each party wears different hats and has different responsibilities in the business relationship. There is also some truth to the oft-stated vendor concept of shared responsibility in that it is not reasonable for clients to expect vendors to give them unlimited liability in lower dollar value contracts, and clients should bear certain liability for their side of the coin, such as when it comes to client data, etc. At the same time, vendors should recognize, without too much argument, that very low liability “base caps” in the contract is not appropriate for certain types of client liabilities, including for data privacy / security breaches, breaches of laws, IP infringement, etc. The key takeaway here is to review these clauses carefully and tailor them to be fair to both parties, capturing the key concepts relevant to the roles played by each party.

Similarly, indemnities are often an underappreciated contract tool that, if crafted correctly, can provide meaningful protection to the parties. When drafting indemnification clauses, parties should carefully consider the specific risks unique to the transaction and allocate responsibility accordingly rather than relying on boilerplate reciprocal language. Key best practices include: (i) clearly defining the scope of indemnifiable claims (such as third-party claims for IP infringement, data breaches, personal injury, or violations of law); (ii) specifying the types of losses covered (including reasonable legal fees, settlements and judgments); (iii) establishing clear procedural requirements for providing notice of claims and allowing the indemnifying party to control the defence where appropriate; (iv) considering whether indemnities should be subject to, or carved out from, any overall liability caps; and (v) including "hold harmless" language, where appropriate, to address both defence obligations and compensation for losses. Parties should also consider requiring the indemnifying party to maintain adequate insurance coverage to back up its indemnification commitments. The goal is to ensure that the party best positioned to prevent or control certain risks bears the financial consequences if those risks materialize.

The following are some additional suggestions to help manage and stave off contention in your contracts.

Future proof your contracts. Nothing is static, technology evolves rapidly and change is inevitable during any contract, including changes in the vendor’s operations and leadership. All contracts should require the vendor to provide disclosures of material changes/events that could affect the client’s business or reputation, including: (i) incidents/events (including subcontractors) that could impact services, client data/customers or reputation; (ii) technology/cyber-incidents; (iii) ownership changes; (iv) significant organizational/operational changes; (v) material non-compliance with regulatory requirements or litigation. Not all these events should necessarily lead to client termination rights unless they cause significant risk or harm to the client or impact the vendor’s ability to deliver the promised products/services. At a minimum, such developments can trigger further governance discussions to determine the overall impact on the contract and whether contract amendments are required. It is also recommended that vendors be obliged to provide adequate and pre-determined advance notice of material product/service changes, new versions of technology, sunsets of critical technology, etc. so that the client can prepare for these changes and suggest amendments to the contract, if required.

Build in clear contract offramps. All contracts should contain very clear and robust termination provisions (in most cases, for both vendors and clients) in addition to the vague language about termination for material breach, non-payment and bankruptcy/insolvency. For example, and as mentioned earlier above, if a client determines that vendor compliance with specific service levels, including problem reporting and remediation, is important, then the contract should spell out the effect of multiple and recurring service level failures, including resolution time failures, to avoid endless spin cycles if the vendor is unable to remedy its ongoing performance issues. Other default provisions could include termination following material privacy/security breaches, export control breaches, significant delays, termination of key subcontracts/subcontractors, etc. It is also strongly recommended that the parties allow for termination for convenience (even if the client is required to pay certain articulated stranded costs). If the business relationship is no longer working, it makes no sense for the contract to force the parties in a miserable partnership. It is almost always better to cut losses and move on.

Build in informal dispute resolution mechanisms. While many contracts include formal dispute resolution provisions, including mediation and arbitration, it is equally recommended that the parties build tiered informal dispute resolution mechanisms at all levels, starting at the SOW/order form level involving project managers and leads to project sponsors, and finally executives. This tiered approach will ideally result in cooling off periods, allowing ongoing dialogue with a view to problem solving the issue rather than just going in, guns a-blazing. However, for this process to be successful, the right individuals at the various entities will have to be involved. Additionally, the vendor should continue to provide services during the dispute resolution period to avoid hostage scenarios that force the client into bad decisions to avoid upsetting existing timelines and limit business interruption/disruption and preserve the relationship while matters are being resolved. Depending on their inclination, some parties may wish to opt for more formal dispute resolution, given the desire for a private, faster remedy. In such case, the contract must carefully define the specific form of formal dispute resolution- mediation, arbitration - the specific rules/regime to be followed, number of arbitrators, experience levels, seat of arbitration, jurisdiction and governing law, etc. It is also important to understand how choosing arbitration will impact subsequent dispute resolution choices and whether it is equally desirable for both vendor and client.

To conclude, while tension in business relationships is inevitable, taking the time to prepare tightly scoped, solid legal contracts that adequately reflect the business deal, as well as provide for mitigation mechanisms and opportunities for dialogue and informal dispute resolution, will go a long way towards preventing actual contract break-down and litigation.