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What a pilot is legally

A pilot agreement is not specifically defined in the law. Parties may enter into an agreement that is not regulated as a specific type of contract (Section 1746 of the Civil Code). This allows for freedom, but also brings responsibility: since the law does not provide a ready-made template, the agreement itself must define what the pilot entails, rather than relying on the law to fill in the missing rules.

In practice, a pilot consists of several elements, each governed by a different legal rule. The supplier provides the customer with equipment, which resembles a loan for use—i.e., the gratuitous temporary use of a non-consumable item (Section 2193 of the Civil Code). The supplier provides software or a service, which constitutes a license or a service. The supplier trains employees and supports operations, which is an activity performed for the customer. The agreement should name and distinguish these elements.

Whether the pilot is free of charge is crucial. In the case of a gratuitous agreement, it is presumed that the debtor intended to bind themselves to a lesser rather than a greater extent (Section 1747 of the Civil Code). This is a presumption regarding the scope of the obligation, not a general rule that ambiguities are interpreted in favor of the supplier; the customer can also be the debtor regarding individual obligations. The presumption is no substitute for a precise agreement, as the customer will base their expectations on what the supplier promised during negotiations.

A pilot therefore stands on three questions: what is being tested, under what conditions, and what happens after it ends. Anyone who does not answer these in advance will find themselves in a dispute after three months over whether the pilot was successful, whether the customer is obliged to continue, and who owns the data generated during the test.

Pilot projects in the field of artificial intelligence and software have their own specifics, which are discussed in the text on the legal framework for testing and pilot projects of AI/SW. This article is general and applies to the supplier of any product, whether it is a machine, equipment, software, or service.

Purpose, scope, and duration of the pilot

The agreement begins by defining the purpose. The supplier wants to prove that the product works at the customer's site under real conditions, and the customer wants to find out if the product will bring them benefits. If the agreement is limited to a general "product test", each party will understand it differently, and a dispute over whether the test went well is almost certain.

The scope of the pilot must be described specifically: where, on what, by how many users, and for how long. A pilot operation on a single line for three months is a different matter than deployment across the entire plant. The agreement should specify the location, the number of devices or users, volumes, customer cooperation, and deadlines. The more precisely the scope is described, the less room there is for claims that the supplier promised more.

The borrower acquires the right to use the item in the agreed manner, and if none was agreed, in a manner appropriate to the nature of the item, and may not let another person use it without the lender's consent (Section 2194 of the Civil Code). For a pilot, this means that the customer may use the equipment in the agreed manner and must not let another person use it without the supplier's consent. Another person also includes another company in the group, but not another department of the same company. The agreement should clarify this.

The duration of the pilot is agreed with precise dates and renewal rules. A pilot that drags on indefinitely turns into long-term free use, leaving the supplier to bear the costs without any revenue. The agreement should therefore specify a deadline, the possibility of extension only by written amendment, and the method of termination before the expiry of the term, for example, in the event of a breach of obligations or test failure.

No purchase obligation, but with success criteria

The main purpose of the pilot is to decide whether the customer will buy the product. To prevent this from being a matter of impressions, the agreement establishes success criteria: measurable indicators, their values, the method of measurement, and the evaluation deadline. For a machine, this can be performance, consumption, or output quality; for software, response speed or availability; for a service, the number of resolved cases.

Success criteria must be distinguished from a purchase obligation. A pilot does not mean that the customer must buy if the criteria are met. However, the supplier can agree that if the criteria are met, the customer will negotiate with them on a priority basis or grant them an option. Such a mechanism strengthens the pilot while not violating the principle that the purchase is not binding.

For the criteria, it is also worth determining who measures them and from what data. If the supplier measures them, the customer will doubt the objectivity. If the customer measures them, the supplier has no control over the input. It is reasonable to agree on joint measurement or an independent tool and determine how disputes over the result are resolved.

The agreement also includes the procedure after evaluation. If the pilot succeeds, the parties negotiate the delivery for the price and conditions specified in the annex or determined by the procedure. If it fails, the equipment is returned, data is deleted or returned, and cooperation ends without further claims. It is better to write down both paths in advance than to negotiate them after a disputed result.

Dishonest termination of negotiations and pilot commitments

A pilot is often a phase of contract negotiations, and the law sets a special rule for such negotiations. If, during negotiations on a contract, the parties progress so far that the conclusion of the contract seems highly probable, the party who terminates the negotiations without a just cause despite the reasonable expectation of the other party acts dishonestly and must compensate the other party for damage, at most to the extent of the loss from an unclosed contract in similar cases (Section 1729 of the Civil Code).

The supplier should not rely on this provision as a guarantee of a purchase. A pilot that has run successfully does not yet mean that the conclusion of the contract appears highly probable, and budget constraints or a change in strategy may, depending on the circumstances, constitute a just cause for terminating negotiations. According to the Supreme Court, what constitutes a just cause cannot be stated generally, and the assessment should not be too strict (25 Cdo 2535/2021). The law protects against dishonesty, not against business decisions. The supplier therefore needs to have their own safeguard in the form of the investments they put into the pilot and the agreed rules.

The opposite reasoning applies to the customer. If the supplier has spent significant resources on the pilot based on assurances that the customer would purchase, they may face a claim for damages. The customer should therefore not make informal promises and should clearly communicate during negotiations that the pilot does not establish a purchase obligation, preferably through an explicit clause in the agreement.

Both parties thus have an interest in agreeing on a clause stating that the pilot does not establish an obligation for further cooperation, and that compensation for costs or damages from the termination of negotiations is regulated or limited to a specified amount, within the limits allowed by law. Such a clause is significant for assessing reasonable expectations and reduces the risk of a dispute, but it does not entitle a party to act dishonestly and does not replace honest conduct at a time when the parties have reached an almost complete agreement.

Confidential information, data, and results

If a party obtains confidential information or communication about the other party during contract negotiations, they shall ensure that it is not misused or disclosed without a legal reason, and if they breach this obligation and enrich themselves thereby, they shall surrender to the other party what they enriched themselves by (Section 1730 of the Civil Code). The law thus provides basic protection even before the contract is concluded.

For a pilot, this is not enough. The customer provides the supplier with operational data, technical data, and access to operations, and the supplier provides the customer with their own know-how and technical specifications. The agreement therefore introduces confidentiality, determines what is confidential, to whom and under what conditions the information can be disclosed, and what happens to it after termination. It is also recommended to agree on a contractual penalty for breach.

Data obtained during the pilot has its own regime. The law does not provide a simple rule that data is the property of one party, and the agreement must therefore determine what data the customer provides and for what purposes the supplier may use it. Depending on the nature of the data, trade secrets, database protection, and personal data of the customer's employees or clients must be assessed. The use of data to improve the product is often a point of contention. If the supplier requires it, it must be agreed explicitly, with anonymization and a definition of what the supplier may use. Without an explicit agreement, there is a risk of a dispute over whether the supplier misused the customer's data.

The legal regime of the pilot results, i.e., product modifications, improvements, and findings, depends on their nature and who created them; the supplier's mere need to develop them further does not establish rights for them. The customer may require that their specific requirements do not become a competitive advantage for their rivals, and the supplier often accepts this. The agreement should state which rights to the results remain with the supplier, which with the customer, who may use them, and whether the supplier may use the customer as a reference.

Liability for damage, insurance, and safety

The pilot takes place in the customer's operations, which is why liability for damage is the most sensitive issue. The customer is afraid that an unverified product will damage their equipment or interrupt production. The supplier is afraid that a free test will expose them to unlimited liability for damages that do not relate to the revenue from the test. The agreement must therefore allocate risks explicitly.

The supplier should limit liability to a specific amount and exclude selected types of damage. Indirect damages, loss of profit, and damages from production downtime are the most common subjects of dispute during a pilot, and the supplier therefore excludes them or limits them to an upper limit corresponding to the nature of the pilot. The customer, on the other hand, demands protection against damage to their own equipment and safety, and negotiates exceptions to the limitation.

Limits have legal boundaries. No regard is paid to an agreement that excludes or limits in advance compensation for harm caused to a person's natural rights, or harm caused intentionally or through gross negligence, nor to the limitation of the rights of the weaker party (Section 2898 of the Civil Code). The law distinguishes between actual damage and loss of profit; it does not know terms like indirect or consequential damage, and the agreement must therefore define the excluded types of damage specifically.

Insurance is a good practice. The supplier proves that they have liability insurance that also covers pilot operations, and the customer proves that the equipment on which the test will be carried out is insured. The agreement determines who will provide the insurance and who will present the confirmation to whom. Insurance does not eliminate liability, but it ensures that the impacts will not threaten the existence of one of the parties.

Safety and compliance are a chapter of their own. If the pilot involves equipment that is installed in operations, the agreement must state who is responsible for installation, compliance with technical standards, and operator training. Rights from defective performance are regulated in detail for purchase contracts (Section 2099 et seq. of the Civil Code), but in a pilot, the item is usually not purchased. For loaned equipment, the law explicitly addresses mainly damage from a defect that the lender concealed (Section 2195), which is why the scope of liability must be agreed separately.

Market standard and warning signs

A good pilot agreement is short but precise. It contains the purpose, scope, duration, success criteria, evaluation method, post-termination procedure, confidentiality, data handling, allocation of liability, insurance, and a clause stating that the pilot does not establish a purchase obligation. Each of these parts has one or two provisions, and together they fit onto a few pages.

A warning sign is a pilot without a written agreement, without a deadline, and without success criteria. Other signs include a promise of "we will see later" without any procedure, unlimited liability of the supplier for damages during a free test, and the absence of rules on data. A fourth sign is a situation where the supplier invests more in the pilot than would correspond to a realistic chance of a deal, and has nothing to secure this investment.

A pilot often leads to a long-term supply or service agreement, which is why it is worth thinking about it during drafting. A supplier of software or a cloud service can use the findings from the text on contractual assurance of availability and quality of cloud services (SLA), which determine the parameters to be agreed upon during the pilot.

A software supplier should also expect that the customer will compare the pilot with other forms of cooperation. The differences between custom development and cloud services are discussed in the text on whether to order custom software or SaaS. The pilot is then better placed within the framework in which the customer thinks.

Typical mistakes and their price

The first mistake is a pilot without an agreement. The parties agree by email, start testing, and after three months, each believes they agreed on something else. The price is a dispute over whether the pilot was successful, whether the customer owes any performance, and who owns the findings and data.

The second mistake is the supplier's unlimited liability. The supplier provides a free test and does not agree on a liability limit. In the event of a failure that interrupts the customer's production, it turns out that the loss exceeds the value of the entire future contract. The price is a loss that will never be recovered from the pilot, which is why the limit is agreed before starting, not after the failure.

The third mistake is confusing a pilot with a purchase obligation. The customer signs a document containing formulations about a "future delivery", and the supplier later considers it binding. If the parties did not agree that the purchase is binding, it is a dispute over interpretation that neither party wants. It is better to write clearly what is and what is not binding.

The fourth mistake is neglecting the end. The agreement addresses the start, but not what happens if the pilot fails, or if it succeeds and the customer does not want to buy. The equipment remains with the customer, the data with the supplier, and nobody knows who is supposed to return them. The lawyers of the ARROWS law firm assess the scope, criteria, liability, data, and end for each pilot, as the correct setup depends on the product and how much the supplier invests.

Risks of a pilot without an agreement

Final summary

A pilot without a purchase obligation is a useful tool, but it only works with rules. The article showed that a pilot is an innominate or mixed agreement that the parties must write in its entirety, that success criteria are decisive, and that it is better to regulate liability, data, and the end in advance rather than in a dispute.

For company management, this means a clear task: before starting a pilot, draft a short agreement with the purpose, scope, criteria, liability limit, and rules for the end. Postponing these steps leads to the test bringing a dispute instead of business, and the supplier bearing costs and risks that nobody calculated.

The lawyers of the ARROWS law firm prepare agreements for pilot projects, set up criteria, liability, and data protection, and represent suppliers in negotiations with customers. Write to us at consultation@arws.cz or check out our service for contracts and negotiations.