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Beware pitfalls of cloud contracts

Think it’s just your business’ data being stored in the cloud these days? Think again. Some (or all) of the provisions of your contract with your cloud provider also may be “floating,” and can thus be changed at any time, often without notice to you.

How is this possible? Part of the blame rests with the modern-day trend of simplified contracts that include some brief general terms and conditions hyperlinked to online terms that can change at any time.

Typically, these contracts are presented on an as-is basis, and built-in protections, including service levels, generally provide only basic protection. Businesses then have little to no ability to terminate the agreement, even if key terms — including support obligations, service levels, service descriptions and performance standards — change to their disadvantage. Such key terms can change at any time, generally without notice.

As a result, businesses really can’t be assured that they will have key functionality and performance for their cloud-based system available when they need it. Even though you’re being asked to commit to purchasing a service, most of the elements that make that service valuable to you are not fixed.

Despite this, the customer is bound by the contract but the vendor is not, and can change the contract at any time.

With the advice of a trained legal professional, businesses that use cloud providers can mitigate some of these risks. Consider these suggestions:

  1. Require contract terms to be put in writing and attached to the agreement as fixed provisions.
  2. Build in language that makes clear the vendor cannot materially decrease the overall levels of performance and functionality reflected in the terms as of the date the contract is signed.
  3. Set clear termination rights that protect the business in the event of:
    • Objective failure to achieve service levels.
    • Changes to the overall terms of the engagement if the content of one or more of the online portions of the agreement changes.
    • Changes to the vendor’s financial wherewithal or ownership.
    • Changes in applicable law or regulations.
  4. Long-term contracts should be avoided. Instead push for  shorter initial terms with the right to renew for additional one-year periods.
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