Sunday, March 10, 2019

10 Questions to ask before signing your cloud computing contract

10 Questions to Ask Before Signing Your Cloud Computing Contract
As pointed out in a previous article on cloud computing project management two things that have changed a lot with the rise of cloud usage are vendor relationships and contracts.

Contracts for cloud computing are rather inflexible by nature. In a cloud computing arrangement, what's negotiable and what's not? Cloud computing may be highly virtualized and digitized, but it is still based on a relationship between two parties consisting of human beings.

Below you will find 10 questions you should have answered before you sign your cloud computing contract. In my experience, these are also the biggest discussion points between a cloud provider and you as a cloud customer when negotiating such a contract.

1) How can you exit if needed? 

The very first question you should ask is, how do you get out when you need to? Exit strategies need to be carefully thought out before committing to a cloud engagement.

Vendor lock-in typically results from long-term initial contracts. Some providers want early termination fees (which may be huge) if customers terminate a fixed-term contract earlier for convenience, as recovery of fixed setup costs were designed to be spread over the term.

Often, contracts require "notice of non-renewal within a set period before expiry," causing customers to miss the window to exit the arrangement. Such onerous automatic renewal provisions can be negotiated out up front.

One other very important aspect of your exit strategy is the next question.

2) Who maintains your data for legal or compliance purposes, and what happens to it when contracts are terminated?

I have not seen a lot of negotiation yet around data retention for legally required purposes, such as litigation e-discovery or preservation as evidence upon law enforcement request. I think this issue will become more important in the future. One area that is being negotiated with increasing urgency is the ability to have your data returned upon contract termination. There are several aspects here: data format, what assistance (if any) providers will give users, what (if anything) providers charge for such assistance, and data retention period.

Another question that comes up is how long after termination users have to recover data before deletion. Many providers delete all data immediately or after a short period (often 30 days), but some users obtain longer grace periods, for example two months, perhaps requiring notice to users before deletion.

3) Who is liable for your damages from interruptions in service? 

For the most part, cloud providers refuse to accept liability for service interruption issues. Providers state liability is non-negotiable, and “everyone else accepts it.” Even large organizations have difficulty getting providers to accept any monetary liability. This can be a deal-breaker.

4) What about service level agreements (SLAs)? 

Service level agreements are another important piece of a cloud contract, and come in many flavors, since standards are lacking in this area. SLAs are often highly negotiable, as they can be adjusted through pricing—the more you pay, the better performance you are guaranteed. If SLAs are not kept, payments in the form of a service credit is normal. But how much?

5) Does availability extend to your data? 

Cloud providers tend to emphasize how redundant and fault-tolerant their clouds are, but cloud customers still need to do their due diligence. Like fire insurance for an apartment, the provider will rebuild the structure but not compensate the renter for the damaged contents. While some providers will undertake to make the necessary number of backups, most will not take steps to ensure data integrity, or accept liability for data loss.

6) What about the privacy and residency of your data?

GDPR is an important piece of data privacy legislation that regulates how data on EU citizens needs to be secured and protected. GDPR prohibits storing of data outside the boundaries of the EU without additional measures.

With the European Court of Justice’s ruling in 2015 that the Safe Harbor framework is inadequate to protect the privacy rights of EU citizens when their data is processed in the United States, it’s important to check if your U.S. provider is a member of the Privacy Shield Framework.

Some providers will not disclose data center locations. Verifying that data are actually residing and processed in the data centers claimed by providers is technically difficult.

7) What happens when your provider decides to change their service?

Many standard terms allow providers to change certain or all contract terms unilaterally. Enterprise cloud providers are more likely to negotiate these provisions up front, as are infrastructure providers. But for the bulk of businesses using more commoditized Software as a Service (SaaS) applications, you might have to accept providers’ rights to change features.

Customers are able to negotiate advance notifications of changes to Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) engagements; however, as these reach deeper into your organizational systems, these changes could result in you having to rewrite application code created to integrate with proprietary provider application programming interfaces.

8) How do you manage your intellectual property rights? 

Intellectual property rights issues are a frequently debated issue. Providers’ terms may specify they own deliverables, for example, documentation. However, the line is sometimes unclear between a customer’s application and the provider’s platform and integration tools. Where integrators develop applications for their own customers, customers might require intellectual property rights ownership, or at least rights to use the software free after contract termination or transfer.

Another issue of contention concerns ownership rights to service improvements arising from customer suggestions or bug fixes. Providers may require customers to assign such rights. Yet customers may not want their suggested improvements to be made available to competitors.

9) What are the reasons for your service termination?

Non-payment is the leading reason providers terminate contracts with customers, but there are many other issues that crop up, which may or may not be the customer's fault. Other reasons providers pull their services include material breach, breach of acceptable use policies, or upon receiving third-party complaints regarding breach of their intellectual property rights.

The main issue is that the actions of one user of a customer may trigger rights to terminate the whole service. However, many services lack granularity. For instance, an IaaS provider may not be able to locate and terminate the offending VM instance, and therefore needs to terminate the entire service.

Providers, while acknowledging this deficiency, still refuse to change terms, but state they would take a commercial approach to discussions should issues arise.

10) When was your provider’s last independent audit?

Most cloud providers boast their compliance with the regulatory scheme du jour. But any cloud customer—especially one working in a highly regulated industry—should ask a provider: "How long ago was your last independent audit against the latest [relevant] regulatory protocols?"

Even for cloud customers that don't operate within a highly regulated sector, it might be a plus to know that a selected provider can pass a stringent regulatory audit.

Conclusion

When cloud customers seek to negotiate important data security and data privacy provisions, a common response from cloud providers is that the terms and conditions with which the customer has been presented is a "standard contract"—implying that it is, as such, non-negotiable.

A good counter-response is: "I understand—and these are my standard amendments to the standard contract."

Try asking a cloud provider if they have ever added, waived, or modified a contentious provision for other customers. See how they respond.

An organization's data represents its crown jewels. As such, no cloud customer should just lie down for a disadvantageous, and potentially harmful, cloud contract.

A cloud contract is just that: a contract. As such, it carries with it all of the normal pitfalls of a contractual relationship—and a few specialized ones. By asking the right questions, you’ll ensure your rights are protected.
Posted on Sunday, March 10, 2019 by Henrico Dolfing

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