Understanding Vendor Liability Caps in IT Contracts: Insights and Data
Understanding Vendor Liability Caps in IT Contracts: Insights and Data Analysis
If someone tells you that IT contracts always set the vendor's cap at 12 months of fees, you now have the contract data to tell them it is a bunch of hooey.
Data Insights on Vendor Liability Caps
When we look at the vendor's starting form of contract, most (51% to be precise) had a cap on damages equal to 12 months of fees.
So there is some truth that many do cap it at that amount. But that means 49% of their forms did not set it at 12 months' fees.
Variations in Liability Caps Across IT Contracts
The data showed that 11% set that cap to be less than 12 months' fees, while 2% set it at more than 12 months. We also see that 13% of the vendor forms have another metric for setting a varying amount, while 6% use a fixed amount.
Circumstances Where Vendor Liability Exceeds 12 Months
The most interesting thing in this data to me is that while 8% of vendors' starting forms cap liability at all fees paid or more, 18% of the negotiated agreements set it at those levels.
When Do We See Vendor Liability Go Beyond 12 Months of Payments?
Here are two circumstances where I see this happen:
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Customer Has Bargaining Power: Market standards can shift when one party has significant leverage to negotiate better terms.
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Customized Services: While 12 months' fees are common in SaaS agreements, more complex contracts often tie the cap to the total contract value.
This blog post uses data from TermScout's database of 1,000+ IT contracts. It is based on Laura Frederick's LinkedIn post.
Other Resources on Vendor Liability Caps in IT Contracts
How to Contract
- Limitation of Liability Training Hub, including our limitation of liability free checklist: www.howtocontract.com/limitation-of-liability
- Courses on limitation of liability agreement provisions: www.howtocontract.com/limitation-of-liability-courses
Articles from AmLaw100 Firms
- “Contract Corner: Limitations of Liability—Structure and Enforceability” by Morgan, Lewis & Bockius LLP: www.natlawreview.com/article/contract-corner-limitations-liability-structure-and-enforceability
*This blog post uses data from TermScout's database of 1,000+ IT contracts. It is based on Laura Frederick's LinkedIn post.
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