How to negotiate the perfect cloud contract

By now we are all familiar with the benefits of using the cloud. There’s the seamless scalability, lower running costs, lower carbon footprint, an end to capital expenditure and so on. Today the real question is what types of cloud provision do you need and how can you get the ideal contract?

It’s not easy. The truth is that in the rush to adopt the cloud some rather questionable practices have sprung up. Take the issue of contract length. Some organisations are signing deals lasting five to seven years. This is an aeon in terms of technology. A change in business model could render the deal obsolete in year two, with no escape.

Long contract lengths also contravene the ethos of the cloud. The whole point is to be flexible. Businesses should be able to “flex” their demand whenever needed. Such long contracts negate this.

Then there’s cost structure. Some cloud deals include a high fixed-cost component – it can be as high as 85 per cent of the overall bill. This means that if demand halves, the cost will barely budge. Again, this runs contrary to the purpose of using the cloud.

So what should the ideal contract stipulate?

Regarding length, customers should ensure that a contract protects their interests and not those of the provider. The government now mandates this with procurement through its G-Cloud framework with sales terms and conditions that stipulate just 30 days cancellation notice. Commercial sector providers must do the same.

A provider should be able to offer both public and private flavours of cloud, including the ability to act as a broker to other third-party offerings as needed

For example, T-Systems is currently in the process of launching the un-outsourcing concept, a programme that will allow customers to walk away penalty free from certain services regardless of how long they still have to run on their contract.

On cost, fees should scale with usage and there should be no fixed element. Clients only pay for what they use. This gives businesses real freedom to experiment with products. It becomes possible to launch a new offering with very little in the way of risk. If demand is low, the costs stay low. If there’s a rush of demand and there is a rapid need to scale, then costs rise commensurately.

Again, this fee structure will not be found at all cloud providers. If it isn’t on offer, then think twice about signing.

The ideal cloud contract will give access to multiple “flavours” of cloud. By now most businesses grasp the merits of the variations. There’s public cloud, where data is stored in a general purpose datacentre accessed by the user over the internet. The hardware is shared by customers, not that they are necessarily aware of the particular arrangements. This is best for large-scale deployments of moderately sensitive data, with a need to tap into commodity-like pricing.

Then there is the private cloud. This set-up gives businesses their own dedicated infrastructure which may be needed to meet regulations, governance or data privacy needs. Pharmaceutical companies, banks, and research and development-intensive companies tend to favour private clouds for very sensitive data or workloads. In reality the right choice for most people will be a blended hybrid solution using both public and private clouds.

When choosing a cloud provider it is vital to ensure there is a mix of public and private cloud on offer. If the provider only offers one flavour of cloud, they may recommend whatever they can supply, not what the client actually needs.

A cloud provider must offer the latest technology. For example, SAP HANA offers in-memory computing for ultra-fast data access. A number of T-Systems customers use the Dynamic SAP HANA platform to run real-time business analytics. By using a cloud-based solution, these customers avoid the significant lead time and capital expenditure associated with an on-premise solution, and can expand their programme as needed.

One crucial but overlooked element when selecting a cloud supplier is the “single broker” role. Customers often have complex needs. This entails a mix of cloud provision by multiple cloud providers. Some chief technology officers juggle ten contracts simultaneously as a result. This is a needless distraction.

The answer is to find a cloud vendor that takes on the role of a broker in addition to service provider. This vendor will offer their services in tandem with those of rival providers. The single-broker approach simplifies contracts. It becomes possible to negotiate superior service level agreements. It also lowers cost. A cloud vendor acting as broker can negotiate much better deals than a lone business approaching multiple cloud providers in turn.

Data location is a key consideration. The European Union repeal of the safe harbour agreement on data makes it more important than ever to pay attention to where data is stored. There are strict legal requirements to be upheld. The challenge is to store each piece of data in the right geographic location, without running into latency problems caused by multiple hosting provision.

Tsystems_image3_nlWhen it comes to ethics your chosen provider should be beyond reproach. Transparency International provides a global ranking of telecom companies based on clear reporting, anti-corruption and transparent structure. The 2015 report placed Deutsche Telekom, T-Systems’ parent, as the world’s most ethical provider.

Set-up should be quick. If a cloud provider takes months to prepare a service, then alarm bells should be ringing. Set-up costs or hardware fees are obsolete. Any cloud provider charging these is really just a hosting solution with a bit of crude cloud marketing.

Edmund English, head of marketing at T-Systems, says there are some key things you need to consider. “A provider should be able to offer both private and public flavours of cloud, including the ability to act as a broker to other third-party offerings as needed,” he says.

“Make sure their solution addresses the challenges associated with the recent safe harbour ruling, provides genuine elasticity in both directions and don’t commit to a contract that doesn’t support change – markets move quickly and you need to be able to respond.”

When you get the cloud right it can deliver extraordinary benefits. Using T-System’s cloud, the Caravan Club can ensure their one million users can book pitches with no delay throughout the year, even when next season’s places are released, which typically sees a huge peak in online traffic.

The cloud can offer limitless scale, dramatically lower costs and simplify your IT – it all begins with the right contract.

Open Telekom Cloud, a new European public cloud platform is brought to you by T-Systems, a division of Deutsche Telekom, launches in March 2016. To find out more visit