Every company in every industry is transitioning to a cloud environment due to its reliability and cost effectiveness. The question that I get asked all the time is, what should the CIO look for when negotiating a cloud contract? While cloud computing is not new anymore to most organizations, there is still a lot to negotiate when it comes to cloud service contracts, because most of the standard terms are in favor of the vendor.
Like any other contracts, negotiating a cloud service contract is all about knowing what questions to ask, so you know exactly what you’re getting yourself into. There are countless questions you could have when you sign your next cloud service contract, but these here are my top 5 tips when negotiating a cloud contract.
- Service Level Agreements?
One of the most common and dangerous mistakes that businesses make when negotiating cloud contracts is not negotiating the service level agreements. A service level agreement or SLA is a commitment on the availability and level of performance of the cloud provider. These are highly negotiable, and can affect the price of the services themselves. Service level agreements should be spelled out as clearly as possible so that you know what you can expect from the cloud provider and what should be done if there are any serious issues. I will usually target a 99.5 percent uptime as a starting position with a monthly measurement for the SLA. There are vendors that will measure themselves quarterly, which is more lenient, but since I operate in the healthcare space, it is critical that I have the measurements calculated monthly. A 99.5 percent uptime is what I target for the live environment, but let’s not forget about the SLA on the backup and recovery side of the cloud environment. With every SLA clause in the contract, there must be a liquidated damages section highlighting the penalties if the SLA is missed.
- Where is the data located?
Cloud computing may be all about being able to access your data via the Internet, but that data still needs to be housed at a physical location. Certain countries have regulatory requirements that restrict having their data reside outside of their country so this is critical if you have international clients and you must comply by the regulatory requirements.
- How do I get my data?
While it is nice to have a long-term contract with a cloud service provider, you should be able to exit your contract if you need to without paying huge data migration fees. You must negotiate the export of your data in a predefined format (csv, xls, xml, etc) upon termination without any cost. There has to be also an agreement that your cloud provider will assist in providing the data export in the above format in case you are not able to create the export easily. Basically, you want to avoid vendor lock-in, which can make it nearly impossible to get out of a contract. Many contracts require a notice of non-renewal within a certain period, so make sure you know when that period is just in case you need to opt out of your contract.
- How is Data Maintained for Legal Purposes?
While there hasn’t been a lot of negotiation regarding data retention for legally required purposes, it could still become an issue in the future. Many service providers will delete your data shortly after a contract is terminated, usually within 30 days. In some cases, the data is deleted almost immediately. If this data needs to be retained for legal purposes, you should make sure it can be stored for a longer term so that you will be given ample opportunity to retrieve it and back it up to an alternative source before it is gone. You must negotiate the right to access your data for at least 60 to 90 days post-termination at zero or minimal cost while you transition to a different provider.
- Negotiate renewal rates now!
Many cloud service providers are allowed to change their subscription pricing when it is time to renew. I have seen subscription contract price increase up 15 percent from certain vendors. Do not assume that because you have a good relationship with the vendor and there is an increase in the volume and usage, that you will automatically get a reduction or the same pricing once it is time for a renewal. I would negotiate a maximum cap increase on the renewal and also include a tier discount approach if you increase your usage. This is a critical element, because once you transition to the cloud, you are basically locked in and making a change in vendor is a difficult task.
Those are my top 5 tips for cloud contract negotiations. What is your strategy for cloud contract negotiations?
[This piece was originally published on LinkedIn Pulse by David Chou, who is CIO at Children’s Mercy Hospital in Kansas City, Mo. To follow David on Twitter, click here.]
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