Gary Audin
Gary Audin is the President of Delphi, Inc. He has more than 40 years of computer, communications and security...
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Gary Audin | August 29, 2014 |


Moving to the Cloud: The Contract

Moving to the Cloud: The Contract You can't avoid it. You must look at the cloud for IT services. However, the cloud provider is not your employee. You do not have the same control.

You can't avoid it. You must look at the cloud for IT services. However, the cloud provider is not your employee. You do not have the same control.

You outsource responsibilities and share authority with the cloud provider. Let's assume you want to use cloud-based Unified Communications (UC). How do you protect your organization when you no longer own and operate the UC technology?

The answer is: The contract. The contract is written to protect the provider and ensure its profits. It covers what and how the enterprise will be charged for services. The contract may have hidden charges, so IT must exhaustively review the contract and the conditions under which the hidden fees will have to be paid. The contract may not cover all the legal issues that an enterprise should negotiate (see "The Legal Side of the Cloud: Worrisome?").

Beware the Long-Term Contract
A long-term contract may lock in low rates. It can also prevent the enterprise from benefiting from provider competition.

Watch out for the methods of canceling the contract for non-delivery of service. What if it goes down for a day or a week? Can you terminate for this cause? Will the credit for a service outage be worth it? (See "Getting Cloud Credit").

Read the fine print in the agreement, especially the Service Level Agreement and what the SLA exempts (See "What's in Your SLA--Risk?"). The exemptions may make the SLA nearly worthless. If you are not confident what it means, pursue legal advice before signing.

When the service fails, is it up to the enterprise to contact the provider, or will the provider inform the enterprise of what happened, its impact on the service, and the resolutions being pursued to return the service to operation? Rapid notification can allow the enterprise to take steps to mitigate the problem, reduce its duration, or temporally change its business operation. The enterprise can be proactive and inform its user and customers of the event and its possible resolution, thereby limiting the damage to its reputation.

Prepay: Will They be There?
It is not unusual for a cloud provider to include implementation services in the contract. The implementation services can include both integration assistance as well as ongoing support. The enterprise may be prepaying for implementation and support before it is delivered. What if the provider does not deliver on time or delivers poorly during the implementation phase?

The enterprise does not have any leverage over the provider because the money has already been collected. You don't want C-level executives to get involved with delivery problems. The IT department will look bad if this occurs, and this scenario may encourage C-level executives to become more involved because they see weaknesses in the IT management. Holding back payment will get the most attention from the provider.

Seats vs. Volume
In the present business climate, it's far from certain that the enterprise will continue to grow and retain its employees. So the enterprise needs to anticipate scenarios for both increasing and decreasing the number of its employees. In addition, there are many enterprises that have seasonal variations.

Most cloud services providers, like those offering Unified Communications as a service, sell by the seat. But if seats are empty part of the year, why pay for them?

Instead, look for agreements that charge by volume, with a low seat fee or no fee at all. The total bill may be lower when a low seat fee is charged combined with a higher volume fee.

Shop around. You may discover alternative fee structures that are more attractive. Using this knowledge allows the enterprise to create leverage. If the enterprise likes a particular provider, but that provider does not have an attractive fee structure, the threat of going with another provider may force the preferred provider to change their fee structure.

IT or the Business Unit?
There are many cloud providers in the market. They have been known to bypass IT and sell directly to the business unit. The business unit management may believe they know enough to establish a reasonable contract, but they usually do not.

Who is in charge of the contract and services? Who is responsible? Does the contract cover backup, storage, and data access? The provider salesmen assure the business unit that all is well, but the business unit will probably call IT when the service does meet expectations.

Do not allow business units to pursue cloud services independently. Obtain agreement from the CEO or CFO that IT has jurisdiction over cloud contracts. The CIO should deliver a presentation, not just a document, to all the business unit executives presenting the risks to business units if the contract not does go through IT first before signing.

Buy What You Need When You Need It
Salesmen make commission. They are pressured to sell as many services as possible. If the service is free, accept it. If there is a cost, make sure you will use the service. Just because Lync is available in the cloud does not mean you need it, especially if you already have Lync software licenses. Sometimes by accepting extra services, the enterprise may be able to negotiate a lower fee in another part of the contract. As long as the total bill is lower, then sign up for the services even though they may not be used. This has occurred in some cloud contract negotiations.

Watch for the Volume Discount
Volume discounts have thresholds. If the volume discount kicks in with a low volume compared to the enterprise's usage, agree to it. However if the volume discount does not take effect until a high volume is reached, there may be penalties to pay when the volume is not met by the enterprise.

When the volume discount level is above normal usage and the enterprise drops below that volume level, higher fees will start. It is also possible that once the volume level used deceases enough, the reinstatement of the volume discount may not be possible. Ensure that you know how the volume discount is measured. You may find some surprises - for example, what is not included towards the volume discount. Monitor the volume usage to ensure that it is satisfied and you aren't risking a shortfall in volume.

Other blogs that may be of interest include, Cloud UC Availability: Is Five-Nines Real?, The CaaS Cloud; Security and Compliance, and Cloud Collapse.


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