Cloud contracts: Watch those gotchas

Summary:Companies need to plan for data return, service level agreements and exit strategies before signing a SaaS contract.

When it comes to negotiating a software as a service contract, it pays to think about an exit upfront. Why? By 2013, 20 percent of SaaS customers will move to an on-premises software deployment. And by 2014, half of SaaS customers will be hit with higher costs than they expected.

Those takeaways were a few of the gotchas highlighted in a contract clinic at the Gartner Symposium in Orlando.

Also see:  SAP, Oracle negotiations: It's complicated

The interesting thing about SaaS is that its maturing and increasingly becoming more complicated. Among the pre-contract tips:

  • Calculate your costs for an exit strategy in case SaaS doesn't work out. Business process outsourcing and on-premises software are options.
  • Document data retention, security and regulatory requirements.
  • Make sure you won't be stuck with shelfware as a service and features you don't use.

As far as the negotiation goes, the key topics to note are price protection so a company won't be squeezed at renewal and can benefit from decreases in the future. Service level agreements with meaningful penalties also matter and the ability to terminate a contract for outages and regular failure points. Companies also need to be able to adjust usage minimums in a downturn.

saascontracts

On pricing, Gartner noted that common language in SaaS contracts notes that user subscriptions can't be decreased during the subscription term.

As for failures, SaaS providers include supplier delays and Internet disruptions as Force Majeure events. Customers need to read that legalese carefully and make sure failures from SaaS providers aren't easily forgiven.

Data protection is also critical---especially if you need to get your information back for another deployment. Gartner recommends that data security and privacy requirements are detailed and there's an annual certification of standards.

Meanwhile, data return clauses are also important. Companies need to specify the format and delivery modes for a SaaS vendor returns data. In addition, enterprises need to specify that no data can be deleted without approval.

The exit is also important. Termination for convenience clauses in SaaS contracts also require a lump sum fee to exit.

Topics: Cloud, CXO, Enterprise Software

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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