Due to many recent security breaches with cloud and software providers, you may be motivated to take a deeper look into the legal agreements by which you are bound. This PSA serves as a heads-up on some things you should look for in a cloud Master Services Agreement.
First and foremost, be wary of legal agreements that do not define a breach of that agreement. If you are the sorry victim caught in this type of agreement, despite evidence showing a lack of integrity by a provider, you may be on the hook for the complete term and fees (think a building lease). So, while you may have been relieved thinking that going to the cloud would make it less likely you would be held hostage by hackers, you could now effectively be held hostage by your provider if you find your self in such an agreement.
Things to look for:
- Any fair agreement should have a cost to ‘break up’ and/or no fee if there is a breach of service.
- The fair price of a breakup (due to new direction for the firm or an acquisition) should be roughly 1-3 months of fees, not the entire remaining term.
- If they offer a free look period (Something such as “get out before six months for free” or “no strings attached”), be cautious. These are sometimes used to lull you to sleep to hide erroneous terms on the backend.
- If they offer a pre-pay discount, also be wary. Cloud providers have no incentive to get their money up front since they can only recognize the revenue when they provide the service. A pre-pay discount may point to the possibility that a provider is cash strapped, which could put your firm in an uncomfortable situation if the provider cannot recoup any of those prepayments.
While this is by no means an exhaustive list, it is meant to provide some simple guidance and speak to the character of the party you are looking to do business with.