Business contracts with AI service providers

Artificial intelligence (AI) services are increasingly becoming an integral part of modern business. The integration of AI solutions ranges from data analysis to customer service automation and even creative content generation. However, implementing AI is not merely a technological step – it’s a complex legal process requiring careful contract negotiation or thorough review of standard terms offered by the provider, especially as AI increasingly interacts with companies’ internal databases.

Below are the key risks and contract terms businesses should consider when working with AI service providers.

Data is the foundation of AI algorithms. So one of the most critical questions is: who owns, controls, and can use the data?

• Contracts should clearly state that the client retains ownership of the data they provide.

• It’s essential to assess whether the provider is allowed to use this data to train or improve its models, and to what extent – this must be defined explicitly.

• If the data includes personal information, the contract must:
  – Include GDPR-compliant clauses.
  – Define whether the provider acts as a processor or controller.

AI generates content – text, images, code, etc. Therefore, it’s crucial to determine who owns the output: does the client acquire full rights to the AI-generated result, or are those rights automatically transferred?
It’s equally important to assess the contractual rules regarding the creation of updated models trained using client data.

Moreover, businesses must prepare for the increasing risk of third-party claims related to IP infringement. AI-generated outputs may violate copyright or trademark rights, so contracts should define liability boundaries for both parties – especially when client data is used in the AI output.

A sensitive topic: who is liable if the AI makes an incorrect decision?
Providers often aim to limit their liability to a minimum. Businesses should negotiate reasonable and proportional liability provisions, based on where and how the AI will be used within the business process.
As autonomous AI agents become more common, it’s critical to define whether the AI can act independently or only as a support tool – this distinction shapes contractual liability terms.

AI service quality is not always stable – model performance may vary depending on data or context. Therefore, contracts (or provider’s standard terms) should define:

• Accuracy and performance benchmarks;

• Service availability times;

• Update frequency and access, including whether updates are included without extra fees.

As AI regulation increases, contracts with AI providers should include three core safeguard groups:

1. Legal compliance: The provider should explicitly guarantee compliance with applicable laws, including anti-discrimination and fairness principles. Large enterprises may consider negotiating audit rights to examine how decisions are made – especially in terms of ethics and transparency.

2. Cybersecurity: If the AI solution connects to internal systems or data, the contract should define encryption standards, response times in case of security breaches, and liability for damage.

3. Incident management: Contracts should include response protocols, responsible contact persons, and a duty to regularly test AI risks – helping businesses prevent tech issues from becoming legal or reputational problems.

There will always be a need for traditional contract clauses covering relationship termination.
Businesses must ensure they can exit without excessive losses, which means contracts should include:

• The right to retrieve or destroy data;

• Clear data transfer procedures to a new provider;

• Vendor lock-in prevention terms – ensuring the client doesn’t become overly dependent on a specific system or data format.

The AI era is a time of transformation.
We’re ready to support your business with legal guidance in this new reality.

📩 Need help? Contact:
edgaras.margevicius@prevence.legal or info@prevence.legal