As the use of artificial intelligence systems becomes the norm in business, from data analysis and process improvements to generating creative content, businesses need to ensure that their contracts with AI suppliers contain relevant AI provisions – which are new additions to the more usual contract terms for software.Contracts for services that incorporate AI must reflect the bespoke nature of AI tools and provide for transparency, guardrails and set appropriate expectations for both suppliers and users.
So, if you are a business that is thinking about contracting for a service that uses AI, what does your contract need to cover? Below are some key areas for consideration:
1. Transparency and Changes
Do you know exactly what you’re expecting to receive? Your supplier should provide clear information about the AI models used, their capabilities, limitations, and intended use. The AI landscape is changing rapidly, so your supplier should also notify you in advance of any material changes to the AI that may affect outputs, accuracy, or risk profile, including any relevant upgrades.
2. Data Use and Security
Ensure that your supplier is keeping all data inputted into the AI model secure, not sharing it with unauthorised third parties and complying with all relevant data protection obligations if personal data is involved. Consider whether you would want the AI model trained and improved using the data you’ve inputted. Your supplier should have adequate technical and organisational measures in place to avoid unauthorised access, theft, loss or damage to the AI model and the data contained within, and a process to follow in the event of a security breach.
3. Intellectual Property
If the AI model is being used to generate content, reports or any other output for use in your business, consider whether you would want to own all intellectual property rights in that output. As a minimum, you should have a licence to use and continue using that content going forward.
4. Automated Decision‑Making Safeguards
Where the AI system contributes to or makes automated decisions, ensure that you are comfortable with the extent and adequacy of the actual intelligence or human intervention and oversight required, and that appropriate safeguards have been implemented enabling human review, override, and an avenue to appeal.
5. Performance and Monitoring
If your supplier has made promises or guarantees around the performance of the AI model, build these into your contract terms.
6. Compliance
If you are relying on the AI model to produce output for external use, your supplier should ensure that all outputs e.g. marketing materials, comply with applicable consumer protection, advertising, and unfair trading laws.
7. Audit and Records
Your supplier should keep solid records of how the AI model has been operating, including logs, audit trails, and documentation demonstrating how the AI system operates, how data is processed, and how compliance obligations are met. These records should be open to audit and inspection by you.
In summary, if you are using, or intend to use AI within your business, having a clear contract with your supplier can benefit both sides of the commercial relationship. A good contract will protect your data, provide clarity, ensure accountability and manage risk. In light of the EU AI Act, and with the UK also moving towards formal AI regulation, it is never too early to get your contracts in order and stay ahead of whatever legislation and regulation may come into effect.
For any advice or guidance on usage of AI within your business, contact our Commercial, Technology and IP team.
The information on this site about legal matters is provided as a general guide only. Although we try to ensure that all of the information on this site is accurate and up to date, this cannot be guaranteed. The information on this site should not be relied upon or construed as constituting legal advice and Howes Percival LLP disclaims liability in relation to its use. You should seek appropriate legal advice before taking or refraining from taking any action.
