Sourcing the Cloud – Part III

In Part I and Part II of this series, we introduced the topic of Cloud services contracts. We highlighted the challenges being faced by organisations with regards to contract terms and conditions; with some of the issues compounded by the lack of adequate industry standards concerning Cloud services contracts. We also focused on some key contractual areas that if not addressed adequately, can weaken terms and conditions of Cloud services contracts.

This final part of the series will look at contractual disengagement arrangements and provide some concluding thoughts on the topic.

Disengagement arrangements

When considering any new supplier or service, there is typically a lot of focus on the on-boarding and the ‘ongoing’ arrangements. Of equal importance however, when undertaking initial due diligence, is considering the arrangements for disengaging. Regardless of the disengagement reason, understanding what the business impacts will be in these scenarios, forms a critical component of the contractual agreement.

This should lead to a range of questions for the contracting organisation, including:

  • How does the supplier support disengagement of the live environment if it was decided to switch providers or leave for any other reason?
  • How can a live transfer of a production environment be brought into effect? Does the agreement potentially limit the engagement support to the provision of data files within a certain timeframe?
  • What are the timeframes for supporting all aspects of the disengagement arrangements?
  • What are the rights concerning access to data in the event the Cloud provider becomes insolvent or the arrangement is terminated?
  • What are the arrangements for permanent deletion of customer data from the supplier environment after the agreement has been terminated?

All of those questions play an important role when building a contractual agreement with a service provider. There are further considerations, which are not covered in this post, but are critical to be addressed. One of those further considerations would be the complex issue of pricing under a Cloud contract, and whether the supplier has the ability to unilaterally change the contract terms and conditions during the term of the contract.

Bottom line

  • Buyer beware – While the Cloud technology in itself has matured, it is evident that the corresponding contractual frameworks are lagging in maturity and still require a considerable amount of fine tuning.
  • As has been the case with IT contracts long before the advent of Cloud – IT contracts are typically vendor biased – thus enterprises need to be wary of the collection of Cloud contracts they are gathering as they implement these investments in Cloud.
  • Cloud may have changed the technology approach and the service delivery models, and it may well be considered disruptive, but the legal approaches to sourcing these services remain largely unchanged; with buyer beware warnings remaining relevant.

Did you miss any of our previous Deloitte Source Point blog posts? Read them here.

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