For many startups, the first real customer is a large corporate that wants to “try it out first”. A pilot or proof-of-concept (PoC) can open the door to a long-term contract, a reference client and credibility with investors. It can also cost months of unpaid work, expose your intellectual property and leave you with a one-sided contract drafted by the customer’s procurement team.
The pilot agreement is often treated as a formality because the project is small and short. That is a mistake. The terms you accept at pilot stage tend to become the starting point for the main contract, and some of them, such as who owns improvements or what the customer may do with your data, are very hard to undo later.
With many South African corporates now testing AI tools, automation and data products from smaller suppliers, pilots are more common than ever. This article sets out what a startup should negotiate before the pilot starts.
What a pilot agreement should do
A good pilot agreement answers four questions clearly: what will be tested, how success will be measured, who owns what at the end, and what happens if the pilot succeeds. Corporate templates are usually written for buying established products or services. They often assume a finished product, impose full warranties and service levels, and give the customer broad rights over anything produced. A startup should not accept those terms simply because the pilot is short.
Scope and success criteria
Vague scope is the most common cause of pilot disputes. The agreement should describe the use case, the data or systems involved, the duration and the responsibilities of each side. Corporates often need to provide access to systems, test data or staff time, and pilots frequently fail because those inputs arrive late.
Agree measurable success criteria upfront, such as accuracy rates, processing times or cost savings. Objective criteria make it harder for the customer to keep extending the pilot or to decline a full contract without a clear reason. Include a short process for signing off the results at the end.
Fees and costs
Many pilots are free, but they do not have to be. A paid pilot, even at a reduced rate, signals commitment and helps a startup’s cash flow. If the pilot is unpaid, consider asking the customer to cover direct costs, such as hosting or third-party licences, or to credit the pilot fee against the first year of the main contract.
Check the customer’s payment terms. Large companies often pay 60 or 90 days after invoice, and supplier onboarding can take weeks. Ask early what documents are needed, such as a tax clearance status, B-BBEE certificate or banking confirmation.
Intellectual property: protect your core technology
This is the most important part of the agreement for a startup. Corporate templates often provide that all work created for the customer belongs to the customer. Under the Copyright Act 98 of 1978, ownership of commissioned work and work created by employees follows specific rules, but the parties can and usually do agree otherwise in writing. The contract therefore decides the outcome.
A startup should aim for the following position:
- it keeps ownership of its existing technology, know-how and any improvements to it;
- the customer keeps ownership of its own data and existing systems;
- the customer receives a limited licence to use the solution for the pilot only, for the pilot period; and
- any customer-specific deliverables, such as a report on the results, may belong to the customer, but without giving it rights in the underlying platform.
Feedback clauses deserve attention too. It is reasonable for the startup to be free to use the customer’s suggestions to improve its product, without owing the customer anything for them.
If your product involves a patentable invention, remember that South African patent law requires absolute novelty. Under the Patents Act 57 of 1978, disclosing an invention before filing can destroy its patentability. Consider filing a provisional patent application before showing the technology to a pilot customer, and do not rely on a non-disclosure agreement alone. Our article on protecting product designs and inventions explains this further.
Confidentiality goes both ways
Corporates will want to protect their data and business information. The startup also needs protection for its source code, models, pricing and roadmap. Make the confidentiality clause mutual, limit access to people who need it for the pilot, and prohibit reverse engineering. Also check whether the customer may share information with its other suppliers or group companies.
Personal information and data
If the pilot involves personal information, such as customer records or employee data, the Protection of Personal Information Act 4 of 2013 (POPIA) applies. The corporate will usually be the responsible party and the startup an operator. Section 21 of POPIA requires a written contract under which the operator keeps the information secure and notifies the responsible party of any security compromise.
Agree whether test data will be anonymised, where it will be stored, whether it may leave South Africa, and how it will be returned or deleted at the end. If you want to use pilot data to train or improve your models, the agreement must say so expressly, and that use must be lawful under POPIA.
Liability, warranties and indemnities
A pilot is a test. The agreement should say that the solution is provided for evaluation and that the startup does not warrant particular results. Uncapped liability and broad indemnities in a corporate template can expose a small company to claims far larger than the pilot is worth. Negotiate a liability cap, often linked to the pilot fee or a fixed amount, and exclude indirect and consequential loss. See our article on limitation of liability and indemnity clauses.
Also check insurance requirements. Corporates sometimes require professional indemnity or cyber cover at levels a startup does not yet have. Raise this early rather than at signature.
What happens after the pilot
A pilot without a path to a commercial contract can become free consultancy. Consider including:
- a decision date by which the customer must confirm whether it will proceed;
- agreed pricing or a pricing range for the full rollout;
- a pre-agreed main contract, or at least its key terms, attached to the pilot agreement; and
- limits on extensions, so the pilot cannot run indefinitely without payment.
Be wary of exclusivity requests. A corporate may want you to work only with it in its sector. If you agree, keep the period short, link it to the customer actually signing and paying for a full contract, and consider the competition law implications of any exclusivity that goes beyond what is reasonable.
A checklist before you sign
- Define the use case, duration and each party’s responsibilities.
- Agree objective success criteria and a sign-off process.
- Decide on fees, costs and payment terms, and complete supplier onboarding early.
- Confirm that you keep ownership of your core technology and improvements.
- Make confidentiality mutual and prohibit reverse engineering.
- Put a POPIA-compliant operator agreement in place if personal information is involved.
- Cap your liability and exclude consequential loss.
- Check insurance requirements.
- Agree what happens if the pilot succeeds, including pricing and a decision date.
- File for patent protection, where relevant, before disclosure.
How O’Reilly Law can help
We advise startups and growth companies on pilot, proof-of-concept and commercial agreements with corporate customers. We review corporate templates, negotiate key terms such as intellectual property, data and liability, and prepare the main commercial contract when the pilot succeeds. We also assist with POPIA operator agreements and with protecting your intellectual property before you share it.
Contact us to review your pilot agreement before you sign.
Related reading: AI and legal risk for South African businesses · Founders’ agreements: what co-founders should agree early
This article is general information and not legal advice. Correct as at November 2026.