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Cloud contracts: should you agree to sign for several years ?

Posted on September 8, 2023

A fact that we can all agree, it’s that technology is developing rapidly. Technology broke in the fields of law and has affected all the legal procedures. The omnipresence of technology law brought innovations. The rise of IT contracts is now a well-established legal procedure.
However, there are different types of IT contracts. With the rise of Cloud services, a lot has changed in the world of IT contracts. Cloud contracts can be seen as a form of IT contracts but are different from traditional IT contracts.

A mere and simple definition of both:

Traditional IT contracts

IT Contracts means all material agreements or arrangements under which any third party provides or will provide any element of, or services relating to, the IT Systems, including leasing, hire purchase, licensing, maintenance, website hosting, outsourcing, security, back-up, disaster recovery, insurance, cloud computing and other types of services agreements.


Cloud contracts
However, the introduction of Cloud services has changed a lot. Through the Cloud, data is no longer stored on the hardware of the receiving party, but on the Internet. The provider of the Cloud service offers space in a data center, which the receiving party can use, for a fee or not.
In general, Cloud services can be assigned some specific characteristics. Cloud contracts are often non-negotiable, as there is a fixed “package” that the recipients of the service use. The large number of users is related to this: it is not possible to draw up a different contract for each user.
The standard character of the Cloud services also ties in with this. In contrast to traditional IT projects, Cloud often only offers a service. A final feature of Cloud contracts is the fact that no data processing and storage takes place at the customer, but at the provider of the Cloud service.
Although cloud service agreements have superficial similarities to software license agreements, there is a fundamental difference in the legal rights being granted to the customer.

Key terms in a cloud service contract may include:
• Rights to use the service;
• Payement obligations;
• Acceptable use policies;
• Maintenance, availability, support and service credits;
• Service upgrades;
• Right of termination;
• Customer access to data, including upon termination;
• Customisations ;
• Application licensing.

One area of law that has a significant effect upon cloud service agreements is data protection.
In the typical case, the cloud service provider will be a “data processor” in respect of customer data stored in and processed by the service, while the customer will be “data controller”.
However, with increasing competition, providers of platforms or online services offer significant rebate on certain conditions: committing for at least two, three or five years. This commitment can present an issue.
The price of Cloud services rose sharply in 2022, and the trend is not reversing this year. Nevertheless, to qualify for discounts, customers must agree to a multi-year commitment.
Legally, these are multi-year contracts, in which the customer can feel locked in.
As with cybersecurity-antivirus, anti-malware, etc.-Cloud providers offer discounts if you commit to a minimum of 2 or 3 years.

So, after all it is a complex service or not?

For less complex services, such as data storage, a security backup on a drive or an online application, the decision is easy. If you wish to change supplier, you have to retrieve all of your personal data.
On the other hand, when it comes to more complex applications such as sales management or IT platform compatibility such us Python, Java, Ruby etc. or even on big sites such as Amazon, Google, Microsoft etc. better prepare to negotiate the exit conditions!
Thus, the complexity lies to the volume of the platform and the type of the agreement.

The expertise “FinOps”

If the contract is financially onerous and if the volume of data processed and placed on the Cloud is significant, it is necessary to resort to “FinOps” expertise. But it’s better to call on a specialized service provider, an integrator who knows the ins and outs of contracts.
In general, cloud operators are more flexible, and their commercial offers can be very complex. To juggle all these negotiable clauses, it’s best to have a minimum of expertise. It’s all about understanding invoicing methods and controlling discrepancies a posteriori.
After six months or one year of scalability. The bill can swell, or even explode, without even seeing it coming. This could be an opportunity to take a closer look at the number of licenses actually in use, and the number of active virtual machines.

The art of negotiations

A multi-year Cloud contract allows you to budget without the risk of financial derives with the lump-sum payment per month or per 3 months et now for a whole year.
In principle, higher service levels can be achieved, with guaranteed performance and greater responsiveness in the event of an incident. In return, you have to accept a certain “lock-in” by the supplier.
Thus, it is always advisable to opt for the exit clause before signing a Cloud service contract.

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