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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

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. Frank Scavo, president, Strativa

Scavo consulted with a seasonal business that saw its monthly bills soar by as much as 20% when daily transaction counts exceeded the contractual threshold. "Vendors aren't typically going to call your attention to things like that during the contract phase," so it's up to you to think it through and push back, he says.

4. Sign off on the contract before shopping around for better terms
Cloud vendors take different approaches to licensing, and one plan may fit your needs far more cost effectively than another, says Scavo. While many vendors base monthly subscription fees on the number of users or seats, some offer variations on that model. For example, with cloud ERP vendor Acumatica the price you pay depends on the amount of system resources you use, such as projected transaction counts, "so a growing business can add users without buying additional seats," Scavo says.

This is especially important with large-scale CRM or ERP systems because moving off those isn't easy. "There's a certain amount of vendor lock-in with SaaS providers that goes beyond what you have on premises," Scavo says, so get the right contract terms in place before you start down that road.

5. Don't worry about how multiple SLAs will affect the end-to-end performance of your business processes
When businesses use a combination of cloud services within the context of a single business process, end-to-end performance is only as good as the weakest service level agreement. "We're just starting to see the proliferation of cloud service-oriented architectures where you're piecing together numerous cloud capabilities to deliver a business process. If your SLAs are not aligned across that, you may have a weak link in the chain," says Mike Pearl, partner and principal at PwC's advisory practice.

This has been a particularly painful problem for PwC clients that have allowed individual business units to sign contracts.

The biggest failure I see is [in] organizations with a technology buying pattern that doesn't go through IT. People think they have the background to negotiate these kinds of contracts, but often times they don't know what they don't know. Mike Pearl, partner and principal, PwCs advisory practice

One client, a CIO of a multibillion dollar corporation, received a copy of a SaaS contract, signed by someone at one of the business units, that contained no language pertaining to backup, storage or access to data stored by the provider. "The biggest failure I see is organizations with a technology buying pattern that doesn't go through IT," Pearl says. "People think they have the background to negotiate these kinds of contracts, but often times they don't know what they don't know."

 

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