Ben Trowbridge

Successful Contracting in the Cloud

Posted by Ben Trowbridge on Wednesday, 03 November 2010 18:16
Categories: Strategy

A lasting Information Technology Outsourcing (ITO) contract, whether it is traditional or a cloud-based agreement, is one that is fair and based on trust and partnership throughout the contracting process and beyond.

However, the difference with cloud is the commercial and business model within which it operates. Specifically the location of data, potential multi-tenancy agreements, on-demand hugely scalable and agile services (up and down); interoperability are all significant issues which impact the ‘consumer’ style models compared to enterprise wide solutions.

As with contracting for traditional ITO services, a detailed understanding of service provision and delivery is vital before entering into a Cloud-based contractual commitment. Typical areas for focus during negotiations include:

•    Service Level Agreements
•    Service Credits
•    Service Security
•    Service Business Continuity
•    Service Costing Formulae
•    Service Payment Provisions
•    Data Ownership & Protection
•    Legal & Regulatory Compliance
•    IP Protection & Reward
•    Software Licensing
•    Software Escrow
•    Choice of law and jurisdiction
•    Third party rights
•    Duration and termination rights
•    Change of control

We know that cloud-based contracting is forcing major change in the global outsourcing community. It’s affecting pricing, transparency, contract terms, and suppliers; generally everything it touches.

Companies can expect more transparent pricing, shared intellectual property and pooled licensing. And, because cloud contracting offers easy switching between suppliers, at the end of the contract or specific service requirement, customers may switch off or move to another supplier. As a result, suppliers will consider contractual terms to restrict movement; for instance, maximum year length contracts, minimum termination clauses, and open standards for connecting.

Customers are going to find success in the cloud when they work collaboratively with their partners to move toward cloud-based services that are integrated with traditional core infrastructure. Those are the contracts that will stand the test of time.

More information can be found in an Alsbridge whitepaper titled, “Drafting ITO Contracts in the Cloud” on

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