4 posts tagged with "vendor-contracts"

The usage curve barely moved. The bill went up 38%.

That is the email the finance lead at a mid-sized fintech opened on the first Monday of the quarter. Three months earlier, the engineering org had renegotiated their LLM inference contract and shaved a sizeable percentage off the negotiated unit price by committing to a volume floor. The finance model rolled the new unit price into the FY forecast. Nobody bookmarked the footnote in the pricing schedule that said the discount would lapse if monthly usage fell below the floor for three consecutive months. The seasonal traffic dip in April-May did exactly that. The provider re-tiered the account back to list price. No notification reached engineering, because the notification went to the procurement inbox that nobody had read since the contract was signed.

Your labels-per-dollar dashboard is the most flattering line on the team review, and it is lying to you. The denominator is the per-task rate you negotiated with a labeling vendor in 2023, when a human research lead wrote each labeling prompt by hand, edited it twice, ran it past a teammate, and submitted maybe forty prompts a week. The numerator is the number of completed tasks coming back through the API. Sometime in the last three months, your team quietly stopped writing prompts by hand and started generating them with an LLM that emits a prompt every two seconds at a marginal cost rounding to zero. Your labels-per-dollar metric is going up, and the only person who knows the metric is meaningless is the account manager at the vendor who is watching their margin compress and is about to send a contract amendment your procurement team will read as a price hike.

The mismatch is not a vendor problem. It is a contract that encodes assumptions about your workflow that are no longer true, and the gap between those assumptions and your current behavior is the surplus value one side is silently absorbing until the renewal cycle forces a price-discovery conversation. The side that notices the mismatch first sets the new price.

A model card is a research artifact. A datasheet is a contract. Procurement teams routinely read the first as if it were the second, and the AI vendor that handed it over is now bound to claims its engineering team thought were narrative.

This is the cleanest way to lose a renewal: you forwarded the same PDF you publish on your model index page, the customer's legal team excerpted four sentences into Schedule B, and twelve months later you discover that "intended use: general question answering" has become a contractual representation about scope of service. Your team measured those sentences in BLEU points. Their team is now measuring them in breach.

The 14-month-old AI vendor contract on your shared drive was drafted from a SaaS template. It guarantees uptime, names a security contact, and caps liability at twelve months of fees. It says nothing about whether your prompts get fed into the next training run, what happens when the model you depend on is quietly swapped for a smaller variant, or which region your inference logs sit in when a regulator asks. The lawyer who drafted it did a competent job with the vocabulary they had. The vocabulary is a generation behind the surface area.

Procurement teams are still optimizing for the wrong contract. The standard MSA fights battles from the 2010s — outage credits, breach notification windows, indemnification for IP that makes it into the source repository. AI vendor relationships have a different attack surface, and the clauses that matter most are the ones that don't have a heading in your existing template. The team that lets last year's procurement playbook handle this year's vendor stack is signing away leverage they will need within a year.