Spot the risks in a software contract
Task
You are advising the customer, a 40-person design agency, before it signs this software subscription agreement. List the three biggest risks to the customer in order of importance. For each, explain the risk in one or two sentences and propose replacement wording. Keep the whole answer under 250 words. Clause: "In no event shall Provider's aggregate liability arising out of or related to this Agreement exceed the fees paid by Customer in the one (1) month preceding the claim. Provider may modify the Services or these terms at any time by posting notice on its website, and Customer's continued use constitutes acceptance. Customer shall indemnify Provider against all claims arising from Customer Data, including claims caused by Provider's negligence. This Agreement renews automatically for successive twelve (12) month terms unless Customer gives written notice of non-renewal at least ninety (90) days before the end of the then-current term."
- Liability cap (highest): A one-month fee cap is likely far below losses from service failure, data breach, or IP claims. Replace: “Provider’s aggregate liability shall not exceed the greater of fees paid in the 12 months preceding the claim or $[X], and the cap shall not apply to Provider’s gross negligence, willful misconduct, data breach, or IP infringement.”
- Broad customer indemnity: Customer must indemnify Provider even for claims caused by Provider’s negligence, shifting Provider’s own fault to Customer. Replace: “Customer shall indemnify Provider only for third-party claims arising from Customer Data to the extent caused by Customer’s breach or negligence, excluding claims caused by Provider’s negligence, willful misconduct, or breach.”
- Unilateral modification: Provider can change the Services or terms anytime by website notice, with continued use as acceptance, so Customer can be bound to unknown material changes. Replace: “Provider may modify the Services or terms only with 30 days’ prior written notice; material adverse changes require Customer’s written consent, and Customer may terminate without penalty before they take effect.”
1. Broad, potentially uncapped customer indemnity
The agency could have to defend and pay claims caused by the Provider’s own negligence, while only the Provider benefits from the liability cap.
Replacement: “Customer shall indemnify Provider only against third-party claims to the extent caused by Customer’s unlawful provision of Customer Data, excluding losses attributable to Provider’s negligence, misconduct, or breach. This obligation is capped at twelve months’ subscription fees. Customer controls the defense; settlements imposing obligations on Provider require Provider’s reasonable consent.”
2. Provider liability capped at one month’s fees
This could leave the agency recovering almost nothing after a serious outage, lost client work, or data breach.
Replacement: “Provider’s aggregate liability shall not exceed the fees paid or payable for twelve months of Services. For breaches of confidentiality or data-security obligations, the cap shall be twice that amount. No cap applies to Provider’s fraud, willful misconduct, or liability that cannot lawfully be limited.”
3. Unilateral changes compounded by renewal lock-in
The Provider can change functionality or contractual protections without meaningful consent, while the 90-day deadline risks trapping the agency in another annual term.
Replacement: “Material changes to these terms require Customer’s express written agreement. Provider shall give 60 days’ advance written notice of materially adverse Service changes; Customer may terminate before implementation and receive a prorated refund of prepaid unused fees. Renewal requires Customer’s written agreement; otherwise, this Agreement expires at the end of the current term.”
What a strong answer includes. The clause contains four customer risks: a one-month liability cap, unilateral changes by website notice, an indemnity that covers the provider’s own negligence, and a 90-day auto-renewal notice window. Strong answers prioritize the liability cap and the negligence indemnity and give usable replacement wording.