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How to negotiate a contract with a cloud or SaaS provider

Mary Shacklett | April 13, 2012
Cloud and SaaS services are rapidly gaining traction with enterprises and SMBs -- yet IT, which is usually responsible for negotiating contracts with these service providers, may fall short in critical areas of contract negotiation and legal skills.

Cloud and SaaS services are rapidly gaining traction with enterprises and SMBs -- yet IT, which is usually responsible for negotiating contracts with these service providers, may fall short in critical areas of contract negotiation and legal skills. The stakes are high. In a worst case scenario, you can simply realize that you made a mistake, and that you must get out of a contract. In less dire cases, you can find yourself relying on a vendor that doesn't execute to your business SLAs as your internal staff would. The best way to set expectations is by laying them out clearly in the contract that you sign with your vendor. This provides a platform for ongoing discussions about service levels.

What's important?

Large enterprises have their own legal departments, but most SMBs don't. SMBs (and even enterprises) are also very likely to either 1) not have a complete file of all of their contracts; or 2) not read all of their contracts end-to-end. A good practice is to audit your contract file for your SaaS and cloud providers to ensure that it is complete.  If it isn't, and you find you have to ask your vendors for copies of these contracts, do it. In every case, be sure to read the fine print of each contract. This is where terms and conditions and also termination, and penalty clauses are buried.

It's also in the fine print where companies typically have disputes with vendors. The law frequently refers to contracts with an abundance of fine print as potential "contracts of adhesion." A contract of adhesion means that the vendor, which originally drafted the contract, likely drafted it to favor its own position. If you are the party entering into a contract that you have not completely read, you risk subjecting your company to a disadvantageous situation. Even if you're very comfortable reading, and negotiating the entire contract with your vendor, always consult an attorney before signing to ensure you haven't overlooked anything. An hour of attorney time for review and consultation is well worth the effort and the expense, especially if you later find yourself in an unhappy relationship with your vendor.

Here is a list of common, but very important "fine print" issues that companies miss when they don't read contracts closely:

Termination, opt-out and automatic renewal clauses: If they're not in the contract, present your own. If they are in the contract, make sure that you are comfortable with them and if you're not, modify them. Whatever you do, make sure that termination clauses are fair for your company and that you have the flexibility to leave a contract if you have to.

 

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