Gartner Explains What To Look For When Making a Cloud Deal

Because Cloud computing has seen significant gains in popularity recently, the research firm Gartner says “cloud contracts still contain areas of risk for IT decision makers.” Research VP at Gartner, Alexa Bona, said in a statement that “IT decision makers should not judge cloud contracts at face value.” In addition, Gartner reported “key contractual areas that procurement executives should look out for when choosing a new cloud service range from security concerns to levels of service.”

Alexa Bona said, “Cloud services often appear to have lower initial and switching costs than traditional products but they include hidden costs and risks, and require unique terms for contract protection.” compared with traditional arrangements.” For instance, researchers at Gartner found that “numerous cloud contracts contained no guarantees of up-time or performance service-level agreements (SLA) – despite many being used for business-critical operations.” The Gartner report advises that “users negotiate SLAs with penalties, especially for services key to business-critical operations.” As well, Gartner recommends that “users negotiate a separate SLA for security breaches and ensure the provider meets any privacy-related regulations with which the user may have to comply.”

For those contracts that did include SLAs, the Gartner report found that vendors often included penalty exclusions. Gartner warns “procurement executives must spend time going through the penalty exclusions.”  The Gartner researchers also revealed that “a number of contracts only include a 30-day notice period which would not give clients enough time to relocate business-critical services.” In the report, Gartner advises that “users should negotiate a six-month notice period for the termination of services.” In addition, the report says “users need to be aware that some contracts include the right for service providers to suspend services if there is a late payment. This gives the vendor increased powers in payment disputes and that users should negotiate an agreement that stipulates that service cannot be terminated while the user and vendor are in a legitimate payment dispute.”

Frank Ridder, research VP at Gartner, said in a statement, “When negotiating these terms of service, procurement executives should take advantage of the cloud markets which are generally still very competitive.”  As well, he noted that “IT decision makers should be prepared to walk away from deals, if some of the risk elements are not satisfactorily addressed.” However, Ridder said. “over time, buyer pressure will improve the nature of contracts offered so that they are not as ‘provider-centric’ as they are now.”