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8 sure-fire ways to screw up a cloud contract

Robert L. Mitchell | Nov. 20, 2013
Read these tips before you sign anything

Unfortunately, most long-term cloud contracts don't state what happens if the service becomes unavailable for a day, a week or even longer. When do vendors notify you of what's going on behind the scenes? How will they work with you and other parties to diagnose the problem? To what type of compensation are you entitled if the system goes offline for an extended period of time?

If it's not in the fine print, there are no guarantees, and if you're locked into a long-term contract you can't just cancel. You're stuck.

That's what got one Constellation client, a Fortune 2000 manufacturer, in trouble. In the wake of Superstorm Sandy in 2012, the business's billing system went offline for five days. The company put revenue losses for the week at between $3 million and $4 million. Unfortunately, says Wang, "They didn't have any kind of recourse for that in the service level agreement."

While the provider did offer one month of billing credit to make up for the five-day outage, that didn't come close to making up for the monetary damages resulting from the outage. That contract is now coming up for renewal, and the client is looking for very different terms, Wang says.

While most vendors won't agree to conditions that require full compensation for business losses resulting from an outage, you can do much better than what's in the boilerplate. "In some cases we have been able to get the client access to new features, six months' worth of credit or a reduction in the renewal rate," Wang says.

That was after the fact. You're better off, however, negotiating these terms up front. If you can't get an SLA for loss of business, negotiate credit for months of service, new features and lower per-user, per-month pricing for the future. "All are possible," Wang says.

A related issue: Cloud vendors often try to bring their "low-touch" model -- of deemphasizing personal customer interactions -- to enterprise support and services offerings. But that just doesn't work for large-scale systems that provide ERP, CRM and supply chain SaaS. "A lot of that implementation requires higher touch, and many times the cloud vendors aren't set up to do that," Scavo says.

So it's important to vet the capabilities of the provider, and book enough implementation time to get the job done. And if the cloud service provider's resources aren't up to your standards, consider using one of its channel partners -- or go elsewhere with your business.

3. Don't vet the contract for hidden charges that might come back to bite you
Even people used to scrutinizing contracts for on-premises software can be tripped up by cloud service contracts, Scavo says. "Someone on your team needs to know what to look for, particularly when it comes to hidden charges such as exceeding a certain storage or bandwidth threshold. I've had a few customers get burned by that."


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