Drafting and Negotiating Vendor's Scope of Indemnification Claims

Mar 09, 2023

"Drafting and negotiating the vendor's scope of indemnification claims has always been one of the toughest things for me to do.

I wanted to share all the data on the scope of claims in one image so you could see how they all line up with each other.

Here are the things that really struck me:

1. Third-party IP infringement

Check out how high the numbers are on the vendor's indemnity for third-party IP claims. It makes all the sense in the world. We are talking IT contracts and both parties have a strong incentive for the vendor to manage and defend any claims that the underlying IP is an issue. There's clear alignment there.

2. Breach of contract

I also noted the complete LACK of alignment on the vendor's indemnifying customers for claims relating to the vendor's breach of contract. TermScout has more data on this specific claim type, but in many cases, it is a breach of the vendor's confidentiality obligations. Customers included this claim in 80% of their forms, but only 9% of vendors had it in there. The negotiated contracts reflect the final signed contracts included a lower percentage of this claim - just 27% - than I would have expected.

3. Violation of the law

A lot of us have been seeing a shift in the market for indemnification of claims arising from the vendor's breach of applicable law. My experience is that ten, maybe even five years ago, it was very common to include an indemnity. But with the rise of data security and privacy compliance risks, and the size of the financial risks companies are facing, vendors are refusing to take that on. If they do, we are seeing them exclude data and privacy-related compliance claims or subject them to a liability cap."

*This blog post uses data from TermScout's database of 1,000+ IT contracts. It is based on Laura Frederick's LinkedIn post.

**All the How to Contract paid members get access to a free annual TermScout plan, valued at $1,200 per year.