How Should We Update Our Vendor and Employee Contracts for the Generative AI Era?

Generative AI changes how data, content, and tools are used across your organization. To stay protected and compliant, you need to update contracts with generative AI terms with both vendors and employees. This means clarifying data rights, IP ownership, confidentiality, acceptable use, and risk allocation wherever AI is involved, even if contracts do not mention AI today.

• You should update contracts generative AI clauses for both vendors and employees, not just AI vendors.
• Contracts must address data usage, IP in models and outputs, confidentiality, and security.
• Acceptable use policies and “no unapproved AI tools” clauses need to be explicit.
• Clear allocation of liability and indemnities around AI use reduces future disputes.
• Codieshub helps organizations update contracts with generative AI provisions in line with technical reality.

• New behaviors: Staff and vendors may already use AI tools with company data, even without policies.
• Regulatory pressure: Data protection, IP, and sector regulations are evolving around AI use.
• Risk and IP exposure: Unclear terms can lead to data leakage, IP loss, or liability for harmful outputs.

• Data usage and rights
• IP ownership and licensing
• Confidentiality and security
• Acceptable AI use and restrictions
• Liability, indemnity, and compliance

• Specify what data vendors can access, how they may process it, and for what purposes.
• Clarify whether vendors may use your data or prompts to train their own models.
• For safer update contracts, generative AI posture, restrict training on your data unless explicitly agreed.

• Define who owns custom models or fine-tuned versions trained on your data.
• Clarify ownership of embeddings, prompt templates, and other AI-related artifacts.
• Specify how AI-generated outputs may be used in products or internal workflows.
• Ensure contracts reflect your desired update to the generative AI position on IP retention and usage.

• Treat prompts, training data, and outputs that contain business or customer information as confidential.
• Require vendors to apply appropriate technical and organizational security measures.
• Include obligations for incident notification, remediation, and cooperation.

• Update DPAs to cover generative AI use, logging, and retention.
• State whether output logs may include customer or internal data and how they are protected.
• Align with your privacy policies and regulatory obligations when you update contracts with generative AI terms.

• Seek warranties on data isolation, non-use of your data for unrelated training, and compliance.
• Define liability caps and carve-outs for breaches involving sensitive data or willful misconduct.
• Consider indemnities for IP infringement tied to base models or third-party training corpora.

• Include rights to receive documentation on data flows, model updates, and security controls.
• Where appropriate, negotiate audit rights or third-party reports (SOC 2, ISO, etc.).
• Clarify expectations around explainability and logs for high-stakes uses.

• Explicitly prohibit the use of unapproved public AI tools with confidential or customer data.
• List approved tools and channels, plus rules for where and how they may be used.
• Make these obligations part of the updated contract, generative AI language, and internal policies.

• Reinforce that confidentiality obligations apply to prompts, outputs, and any AI-assisted work.
• Clarify that IP in work product, including AI-assisted content, belongs to the company where applicable.
• Address the contribution of employee-created prompts or fine-tuned models as company IP.

• Require employees to disclose AI assistance where necessary (for example, legal, regulatory, or academic contexts).
• Set expectations for review: employees remain responsible for the accuracy and compliance of AI-aided work.
• Integrate these points into your update contracts, generative AI-aligned employee handbook.

• Create or update AI acceptable use, data classification, and security policies.
• Ensure contract clauses reference these policies where appropriate.
• Train staff on both policies and the contractual implications.

• Include AI usage and contractual obligations in onboarding for employees and vendors.
• Run periodic refreshers as tools, regulations, and update contracts as generative AI language evolves.
• Offer clear channels to ask questions and report concerns.

• Track use of AI tools in your environment for policy violations or shadow IT.
• Include consequences for repeated or serious breaches of AI usage rules.
• Review vendor performance and compliance against contractual AI-related obligations.

• Help you map current AI tool usage and data flows.
• Work with your legal and security teams to shape updated contracts for generative AI requirements.
• Align technical architectures with your new contractual and policy framework.

• Review existing vendor and employee agreements for AI-related gaps.
• Propose standard addenda and clauses to update contracts' generative AI terms consistently.
• Support the implementation of logging, controls, and reporting that make compliance demonstrable.

• Inventory key vendor and employee contracts where AI tools, data, or outputs are already in use.
• Work with legal, security, and procurement to draft standard update contracts with generative AI clauses for data, IP, and usage.
• Apply these updates first to new agreements and renewals, then progressively to high-risk existing contracts.

1. Do we need to update every contract to mention AI explicitly?
Not immediately, but you should prioritize contracts involving sensitive data, core IP, or AI-intensive services. Over time, standard update contracts can generate AI language that can be baked into your master templates.

2. How strict should we be about employees using public AI tools?
At a minimum, prohibit sharing confidential or regulated data with unapproved tools, and direct staff to approved, governed environments. Clear rules and alternatives are key to safe adoption.

3. Should vendors be allowed to train their models on our data?
That depends on your strategy and risk tolerance. Many organizations now default to “no” unless there is explicit mutual benefit and strong contractual controls. This should be addressed in your update contracts for generative AI negotiations.

4. How often should we revisit AI-related contract terms?
Given rapid regulatory and technology change, review standard clauses at least annually, or sooner if major laws or business uses change.

5. How does Codieshub help update contracts with generative AI provisions?
Codieshub collaborates with your legal, security, and business teams to map AI use, design compliant technical patterns, and inform updated contracts with generative AI wording so contracts, policies, and implementations all align.