Essential clauses for a hardware-as-a-service (HaaS) contract

Getting the details right for a hardware-as-a-service (HaaS) contract is crucial to set up a smooth and successful partnership. A poorly crafted contract can lead to financial missteps, misunderstandings, disputes, and even compliance risks. A well crafted contract establishes clear expectations and fosters strong customer relationships.

Designing a HaaS agreement intentionally also enables hardware providers to achieve recurring revenue, maximization potential valuation and ensuring long-term success.

The specifics of a HaaS contract will vary depending on the hardware offering, the customer, and the industry. Subscription hardware providers should carefully consider certain key clauses to ensure clarity and protect both parties. Without these key provisions, providers risk costly legal or operational issues.

We break these key contract provisions into 3 categories based on our experience working with HaaS companies in contract negotiations:

• Contract provisions that are specific to the customer and the deal
• Contract provisions that are likely to be debated
• Contract provisions that are often forgotten or neglected

At the end of this article, we consider some important additional legal “boilerplate” provisions that are less bespoke to hardware-as-a-service.

Key HaaS contract provisions that are specific to the customer and the deal

Certain provisions in a HaaS agreement will depend on the unique needs of the customer. These require negotiation to ensure alignment with customer operations. For example, a 40,000 square-foot warehouse will necessarily have distinct equipment and service needs from a 540,000 square-foot facility. Businesses with higher throughputs may require different service-level agreements (SLAs). Buyers with on-site service personnel may demand different warranty or support plans. Such provisions cannot be standardized; they must be tailored to the specific customer or the specific deal in order to ensure the agreement is effective and meets both parties’ expectations.

Ownership of equipment

A hardware-as-a-service contract must include a clear and explicit clause defining who owns the equipment. This clause is foundational to the agreement, as it determines whether the hardware is being sold outright (as in a hybrid recurring sales model) or retained by the provider as part of a managed services arrangement (as in a full subscription sales model).

If the equipment is to be sold, the contract should unambiguously refer to the title, along with any terms related to the transfer of ownership. Conversely, if the provider retains ownership, the agreement must specify that the customer is only granted usage rights for the duration of the contract. Explicitly defining ownership clarifies both parties’ rights and responsibilities—particularly concerning hardware upgrades, insurance requirements, and the return of equipment at the end of the service period.

Scope of services

The scope of services is a critical clause in any HaaS contract, as it defines the solution provided and distinguishes services from the ownership of hardware. In a hybrid model, in which hardware is sold outright and services are offered on a subscription basis, the scope of services must reflect the dual nature of the agreement, detailing both the service components (e.g., software subscriptions, installation, training) and any related hardware terms (e.g., parts, repairs, warranties). By contrast, a full subscription model usually emphasizes a unified package of ongoing service offerings, and must refrain from mentioning identifiable hardware assets (such as specific serial numbers) in order to avoid lease treatment, which could jeopardize the desired revenue model.

This clause should include a clear list of services that will be provided during the term of engagement—such as installation, configuration, troubleshooting, monitoring, maintenance, and support—as well as explicitly state what services are not covered. Clear delineation ensures alignment to the provider’s business model—whether hybrid or full subscription—and provides clarity about the offering for both parties. At this stage, the HaaS agreement must clearly outline pricing, specifying the fees for all services and separating one-time charges, recurring payments, and extra costs. The agreement should clearly define the costs of “on-contract” products and services, as well as “off-contract” or additional services.

Service-level agreements (SLAs)

Service-level agreements (or "SLAs") outline the hardware provider’s responsibilities, specifying response and resolution times based on the severity of events, network downtime guarantees, and performance metrics like uptime percentages. They also define penalties for failing to meet these commitments, establishing an incentive for the provider to maintain appropriate service standards.

Equally important, an SLA should clarify the resources and support the customer needs to commit, such as data access, infrastructure, or timely communication. These stipulations ensure the provider can deliver on its commitments effectively. By making the success of service delivery contingent upon the customer fulfilling these requirements, the SLA creates a mutual framework for collaboration, enhancing both parties’ ability to achieve optimal performance.

Key HaaS contract provisions that are likely to be debated

Certain aspects of a HaaS contract are often up for negotiation, as both parties seek to protect their interests. Payment terms and termination conditions are prime examples, where flexibility and strategic consideration come into play. These provisions can significantly impact the lifetime value of the contract, and it’s essential to approach them with a clear understanding of both sides’ priorities.

Term of the agreement

A HaaS agreement must include the term of the agreement, including the definition of the contractual start date, anticipated duration, and renewal terms. Renewal provisions are critical here, as they establish the process for extending the agreement, clarify timelines for notice, and prevent lapses in service or recurring revenue for the provider.

HaaS agreements most often span one to five years, providing customers ample time to experience the benefits of the hardware while allowing providers to recover initial costs and offset the effort involved in setup. But this can vary widely by industry, and may sometimes be as short as 30 days or as long as 30 years.

Payment terms

Payment terms in a HaaS contract should clearly outline when payments are due after an invoice is issued, including any grace periods and acceptable payment methods. Typically, this is expressed as days net of receiving a valid invoice, such as “Net 30” or “Net 60."

It’s also important to specify payment cadence, whether the contract requires prepayment for the entire term, annual payments, or monthly installments. This clause should also outline any upfront deposits or down payments required. Further, a HaaS contract typically specifies penalties for overdue payments, such as interest charges or legal fees, and states whether services will be paused until payment is made. By setting clear payment terms, the provider ensures predictable cash flow and reduces potential for payment delays or disputes.

Termination

A termination clause covers how and when the contract period can be  terminated acceptably, and what procedures must be followed in order to do so. There are two broad kinds of contract termination. The first is termination for cause (when a party is no longer able to abide by the obligations agreed upon in the contract), which is common in HaaS agreements. The second is termination for convenience (when a party wants to exit the agreement for any reason or no reason), which is uncommon in Haas agreements.

This clause answers key questions related to contract termination. How much notice must be given to the other party of a desire to dissolve the contractual relationship? What are the fees or penalties for early termination? Who is obliged to pay for any damages in case of a contract failure? 

Key HaaS contract provisions that are often forgotten or neglected

When crafting their HaaS agreements, hardware providers often overlook certain provisions that can make a big difference in smooth contract execution. These are the areas that are frequently missed or neglected—getting them right can save a lot of headaches down the road. 

Invoicing terms

This is a critical clause and, unfortunately, many HaaS providers fail to specify sufficient detail around invoicing. The invoicing clause should define how and when each service will be billed—whether support, installation, software updates, etc. This is as critical for ongoing recurring charges as for one-time fees and additional costs. The contract should also specify the invoicing triggers and related milestones to ensure transparency for both parties.

Invoicing terms, which focus on when invoices will be sent, are distinct from payment terms (described above). Common invoice triggers include order placement, asset delivery, asset deployment, or after the asset passes a systems acceptance test (SAT). By clearly defining the invoicing triggers from the outset, HaaS providers avoid ambiguity and prevent confusion later in the contract lifecycle.

Property and network access

Access is commonly overlooked, in part because hardware-as-a-service is still an emerging business model. Industry players tend to be more familiar with either selling machines outright or offering software subscriptions. But as owner of the asset, the HaaS provider must be able to access the hardware on short notice—whether for repairs, for swapping parts, or for any other reason.

The provider may also need remote access to monitor and maintain the hardware from a central location. The HaaS agreement should specify the level of access the hardware provider has (and doesn’t have) to the customer’s location and systems—as well as what the provider can and cannot do with that access.

Periodic price adjustments

Including a clause about periodic price adjustments is essential for HaaS providers to address variables such as inflation, rising material or service costs, and investments in technology upgrades. These adjustments protect profitability, especially over longer-term contracts. Examples of such adjustments include market-rate updates to align with labor pricing or operational cost modifications to account for increased expenses like energy.

One of the most common adjustments HaaS providers include in their contracts is simply an annual price increase. These adjustments help encourage investment from service providers and ensure that long-term deals remain competitive. By defining the price increase mechanism upfront, providers ensure fairness and transparency, allowing both parties to plan for adjustments while minimizing disputes.

Automatic or optional renewals

Including automatic or optional renewals in a hardware-as-a-service contract ensures continuity of service without interruption. Optional renewals provide customers the flexibility to evaluate their ongoing needs, fostering trust and satisfaction. Auto-renewing contracts offer convenience for both parties, eliminating the need to renegotiate or manually renew each time the contract expires, which reduces administrative burden.

For HaaS providers, automatic renewals also help secure a predictable revenue stream by retaining customers for additional contract terms with minimal sales efforts. This approach works well when providers generally have strong long-term relationships with customers. Most providers should seek to include automatic renewal provisions.

Other “boilerplate” provisions for a HaaS contract

These are standard features of every hardware-as-a-service agreement. The provisions play a critical role in shaping the contract and protecting both parties in the long term. While these clauses are less fundamentally customizable and less frequently negotiated, they should not be neglected. Your lawyers will ensure their proper inclusion, and it’s important to understand their significance.

• Liability and indemnification. Liability and indemnification clauses allocate risk between the hardware provider and customer, specifying the types of risks each party may be accountable for. Risks may include damages, losses, claims, fines, or penalties resulting from breaches or negligence.
• Force majeure. A force majeure clause ensures that a HaaS provider isn’t held liable for damage beyond their control, such as natural disasters, wars, or labor disputes. This clause clearly defines the expectations of both parties during a crisis and protects the provider from failures or delays in service due to such unforeseen events.
• Confidentiality and data privacy. This clause ensures that sensitive customer information remains protected, establishing trust between the HaaS provider and the customer. It may also detail the provider’s obligations regarding data handling and compliance with regulations such as GDPR and CCPA.
• Governing law and dispute resolution. A HaaS contract should specify the governing law that will apply to the agreement. The hardware provider should outline the dispute resolution process should any disputes arise.
• Non-solicitation clause. The HaaS agreement may prohibit the customer from soliciting or hiring employees or contractors of the hardware vendor during the term of the agreement, and for a specified period afterward.
• Non-compete clause. A contractual provision might restrict the HaaS customer from engaging in competitive activities that may harm the business interests of the hardware vendor or service providers.
• Scope of insurance. An insurance clause ensures that both parties have adequate insurance coverage in place to protect against potential risks and liabilities associated with the agreement.
• Security clause. A security clause outlines the measures both the hardware provider and the customer should take as they relate to the security of hardware devices, systems, networks, data, and other assets involved in the agreement.
• Warranties and disclaimers. The HaaS company might include a contractual provision outlining any express warranties (or guarantees) provided regarding the quality, functionality, or performance of the hardware. It may also include disclaimers of implied warranties, clarifying that the provider makes no assurances beyond those expressly stated in the agreement.
• Change orders. The agreement may include a detailed description of the process that all parties must follow to make necessary changes to the contract.

Ensuring alignment with financial goals

When drafting a HaaS contract, it’s crucial to consult with finance professionals who understand both the accounting treatment of hardware assets and the complexities of recognizing subscription revenue over time. The structure and language of the HaaS agreement will directly impact how revenue, costs, and asset depreciation are recognized and reported, potentially affecting your financial statements for years to come. Whether it’s your CFO, controller, or a third-party advisor, expert input is essential to ensure the contract achieves your company’s goals based on the relevant accounting standards. Don't wait until an audit to get to the bottom of these nuances!

Cohesive review from legal experts

Navigating the complexity of HaaS contracts requires legal professionals that have in-depth knowledge of the field. It’s essential to work with someone who has experience specifically in hardware-as-a-service agreements. An experienced HaaS legal professional understands the unique risks and challenges involved, from liability concerns and compliance issues to IP protections and revenue implications. They’ve seen the potential pitfalls before and know how to mitigate them effectively. It’s far better to make strategic adjustments now than to face unintended consequences once the agreement is signed.

In addition to providing software that helps hardware-as-a-service businesses streamline their operations and automate financial reporting, Hardfin also connects companies with a network of legal and accounting professionals to fine-tune their agreements. Whether you’re interested in software or in services, feel free to reach out for a quick intro call. We’d love to hear from you.

Disclaimer. This is not legal advice. We share our perspective based on work with leaders across the hardware industry, but it is not intended to guide every case. For a deeper assessment of your own situation, get in touch and we can connect you with the right professionals.