What is a proof of concept agreement/pilot agreement? Explanation and use

What is a proof of concept agreement or pilot agreement? It is the agreement by which two parties agree to first test a solution on a small scale and temporarily before committing to a full collaboration or delivery. Consider a software supplier who runs their system at a customer's site for three months to prove that it works. The core of this contract is that it limits the non-binding nature of the test phase: it regulates who pays for what, who owns the results, what happens to confidential information, and, crucially, whether or not an obligation to continue arises after the pilot.

The short answer

• What: meeting to temporarily and on a small scale test a solution before making a final decision.
• Objective: to limit risk and demonstrate feasibility without a full obligation.
• Phase: this is a pre-contractual or introductory phase, not a final delivery.
• Core: costs, intellectual property of the results, confidentiality and evaluation.
• Important: record whether or not a subsequent obligation arises.

What is a proof of concept agreement or pilot agreement in practice?

You use a proof of concept or pilot when you want to try something out before committing. A proof of concept often technically demonstrates that an idea works, while a pilot tests the solution in real-world practice at a customer. In both cases, you do not want the testing phase to unknowingly escalate into a full commitment, nor do you want the investment you put into it to simply end up with the other party.

The agreement therefore makes the ground rules of the test phase explicit. What is the scope, how long does it last, what does it cost and who bears those costs, what data is shared, and what happens if the pilot succeeds or fails. Without these agreements, ambiguity arises, resulting in disputes regarding money, results, and expectations.

The pre-contractual phase

A pilot usually takes place in the pre-contractual phase: parties explore whether they wish to continue working together. This phase is governed by the requirements of reasonableness and fairness (Article 6:2 of the Dutch Civil Code). According to settled case law, parties are in principle free to break off negotiations, but this may be unacceptable under certain circumstances, for example if the other party was justifiably entitled to rely on an agreement being reached. In such cases, an obligation to pay damages may arise.

That makes a clear agreement valuable. By explicitly stipulating that the pilot is non-binding and does not automatically lead to a follow-up, you prevent the other party from claiming afterwards that legitimate expectations of a deal were created. You can therefore seal off the non-binding nature contractually.

Intellectual property during the pilot

An often overlooked point is the intellectual property of what is created during the pilot. If a supplier builds custom work or processes data, who owns the result, the configuration, or the insights gained? Without an agreement, the copyright generally remains with the creator, which means that a customer paying for a proof of concept does not automatically become the owner of the result.

Therefore, specify who holds the rights to the results, whether the client may use them after the pilot, and under what conditions. Combine this with confidentiality: both parties often share sensitive information, ranging from business data to technical knowledge. A confidentiality clause, possibly including a penalty, protects that information even if the pilot does not lead to a follow-up.

Does a follow-up obligation arise?

The most important question regarding a pilot is what happens afterwards. There are roughly three variants. In the first, the pilot is completely without obligation: both parties may walk away after the evaluation without any commitment. In the second, an option is agreed upon: after a successful pilot, the customer may proceed to a full agreement under pre-established conditions, but is not obliged to do so. In the third, a purchase obligation is linked to a successful pilot, for example, if the pre-agreed success criteria are met.

The variant you choose determines everything. Therefore, define exactly what constitutes a successful pilot, who assesses it, and what consequences are attached to it. Without clear success criteria, a pilot often ends in a dispute: the supplier considers the test successful, the customer does not.

Practical example

An SME logistics company has a software supplier run a planning system at one location for three months. The pilot agreement states that the company pays a fixed fee for the test period, that the supplier remains the owner of the software but the company retains the data entered during the pilot, that both parties observe confidentiality, and that the pilot is non-binding: if successful, the company can expand at predetermined rates, but is not obliged to do so. When the pilot proved disappointing, the company was able to terminate it without cost or claim.

Honest recommendation

You do not always need a lawyer. For a short, cost-free test without sensitive data and without customization, a brief written confirmation of the scope and duration is often sufficient. Engage a lawyer as soon as money, sensitive data, or in-house development is involved, or when one of the parties makes a substantial investment in the pilot. In such cases, you will want the intellectual property rights of the results to be secured, confidentiality to be established, and it to be perfectly clear whether or not any follow-up obligations arise. Especially with a pilot, the biggest pitfall is the lack of clarity regarding what happens next. A short, sharp agreement eliminates that risk.

Want to know more or get started right away? View the pilot agreement proof of concept, read how to drafting a pilot agreement proof of concept , and what to expect if you are considering having a pilot agreement proof of concept drafted .

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