The Contract Clause That Matters Most in AI Deals

Buried in every AI vendor contract are two clauses that decide who pays when things go wrong. They're worth understanding even if you never negotiate a word of them.

The first is indemnification. In plain English: the vendor promises to cover certain costs if their tool causes specific kinds of harm, like infringing someone's intellectual property. Read what it covers, what it excludes, and whether it covers you or just them.

The second is the limitation of liability, often called the liability cap. This sets the maximum the vendor will pay no matter what happens. Many contracts cap it at the fees you paid — twelve months of a small subscription, against potentially enormous harm. Notice the gap. That gap is your risk.

I'm not telling you what to negotiate; that's a conversation for your lawyer and your procurement team. I'm telling you to read these two clauses before you sign, because they are the entire financial shape of your worst day.

The demo shows you the best day. The contract shows you the worst one. Read both.

I explain frameworks; I don't give legal counsel.