Cloud contracts: 5 must-have elements

The cloud is growing at an annual rate of 22 percent and is projected to come in at $178 billion in 2018, according to Forrester Research. There is no question: The cloud is where companies are investing heavily. One topic we rarely hear about is the legal side involving contracts with these providers. Full disclosure: I am not an attorney, but a CIO with more than 25 years of experience, and I have negotiated many contracts with in-house council and cloud providers.

When signing a cloud contract, pay particular attention to these five tenets. This is where a number of organizations miss the mark, and endure challenges walking away from cloud providers without their data and wallet intact.

Listed below are several items you should consider before signing on the dotted line.

1. Clearly state your data egress terms and conditions

When you leave a cloud provider, you want your data back. And, you want it in a readable format. During the signing of a new contact, nobody wants to discuss breaking the agreement, so this is often overlooked or swept under the carpet. The time to negotiate your potential early exit is before you ink the contract. Many cloud provides charge a small fortune for returning your data. Depending on the size, this could be a significant dollar amount. These data egress terms should also include commitments from the vendor to assist in the extraction and preformatting of your data into a useable state. Expect to pay a fee for this but negotiate the amount in advance to avoid sticker shock. Document all these services and charges up front.

2. Early termination fees

All contracts have these. It protects the cloud provider and is a necessary part of the contract. That said, you can and should ensure the penalties are reasonable, or eliminated if there is a lapse in service level agreements. No cloud provider wants to lose a paying customer. Most boilerplate cloud contracts have hefty penalty fees to discourage you from leaving. Times change, and technology changes, so plan ahead in the event you need to move to another provider. In the event of a service level agreement default, I would push for the elimination of any fees, and the possibility of penalties paid by the provider.

3. Security and audits

This needs to be clearly stated in the contract that you have the right to perform periodic audits of the cloud provider and their operations. Your contract should state detailed audits of the datacenters, what tests will be performed, what tools you plan to use, and other items important to your business. On top of all that, certifications such as SAS70, PCI, and others relevant to the service should be valid and current. It is highly advisable to include your CISO in this item.

4. Shop around

Nothing will get a vendor to the table with a sharpened pencil faster that knowing you have three other offers in your pocket. It is unethical to reveal competitors’ prices; however, nothing prevents you from admitting you have other options to try and obtain the best price possible. This falls under Negotiating 101 but is sometimes skipped when discussing with a top-tier provider with a reputation to match.

5. Negotiate banded pricing

Many vendors will offer very attractive pricing to secure you as a client based on your current needs. That’s great, but when you need to increase user counts or resources, you may be hit with sticker shock regarding the price. Best to negotiate a “banded” pricing program up front with the cloud provider that stipulates the cost for adding new employees and resources over and above initial commitment levels. This price protection can amount to tremendous savings over the long run.

In summary, these are just a few pointers to consider when negotiating a contract with a cloud provider. Your best partner in this process is your attorney, so ensure he or she is involved from the very start. Together you will end up with a contract that works for your company.

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