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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.

However, if you are a cloud or SaaS client, SLAs should be part of the contract with your vendor, because SLAs are warranties of performance.  If you don't see SLAs specifically addressed in the contract the vendor presents to you, you should insist that SLAs be added, and these SLAs should reflect what you expect of vendor performance. SLAs can be written into an addendum that is attached and integrated into the contact. Along with this, you should write in an expectation that SLAs and SLA performance are reviewed quarterly (or minimally, bi-annually) with the vendor, with the opportunity to amend them based upon changing business conditions and mutual agreement between you and your vendor.

You should also write in provisions that address the account representative or project manager that your vendor assigns to you. Vendors want to put the right foot forward when they begin a relationship with a new client, so they tend to put strong performers in charge of their new installations. However, once a client is "onboard," it frequently gets assigned a new project manager who is not as effective as the original manager.  Your cloud or SaaS project manager is the daily communications link from the vendor to your staff, and can make or break the success of a new service. Companies that are proactive in their contract negotiations write into contracts that they have the right to interview and accept any new project managers from the vendor.

Finally, terms of entry into a service such as time period, price, parties to the contract, are usually clearly identified, but exit strategies (i,e, termination clauses and conditions) often are not. No one likes to dwell on contract exits when they are contemplating entries into a service, but it is vital to understand the ground rules for both entries and exits before you sign anything. This precludes major headaches if you ever have to exit from a contract. 

Contract negotiation is an opportunity to engage your cloud or SaaS vendor in a thorough discussion of the level of service, and support you expect for your company. It has also traditionally been under-emphasized as an important skill set in IT.  But as more companies adopt cloud and SaaS solutions, knowing your way around contracts and contract negotiations is critical. The contract is a pivotal reference point for your ongoing relationship with your vendor. It is the information source that both parties go to when responsibilities become unclear, or when there are problems with project coordination or execution.

 

 

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