Consider the Total Legal and Management Effort Required to Move to the Cloud

Monday, October 24th, 2011

Many businesses are eager to move all or part of their business computing systems into the cloud. Before taking the leap, give thought to the total cost and legal issues associated with such a move.

What constitutes cloud computing is fiercely debated, but I define cloud computing as using software and/or data storage that is located remotely and that is accessed via an Internet connection, rather than using computers in your offices or remote computers you own and access by a dedicated transmission line.

Here are some popular types of cloud computing:

• “Software as a service” (“SaaS” in geekspeak) – using, over the Web, a software program that is owned and hosted by someone else (Google Docs, for example).
• Software Hosting – Having a cloud provider host at its facilities some or all of the software you have purchased the right to use (“licensed” in lawyer-speak) and would otherwise run on your own computers, except that you now use that software remotely via a Web connection. For example, my law firm could contract to have its main business software hosted – word processing, document management, email, bookkeeping, and metadata scrubbing.
• Online backup – using a remote service to periodically back up the data stored on computers on your premises.

The biggest issues businesses contemplating moving to the cloud need to understand are the enormity of the contract negotiation task and how that impacts the cost-benefit analysis.

Entering into a cloud computing contract will (or at least should) force your business to negotiate contractual terms addressing all of the risks and concerns you may have in the future with the computing systems that you will put in the cloud.

If you run your own computer systems and tech staff, you generally can handle these as management issues. If you don’t like the way things are being handled, you can change direction or staff.

A cloud computing arrangement forces you to think in advance of all of the computing issues that may arise and to make certain your contract covers those concerns.

For example, if you run your own computer system on your premises, it’s a management issue as to whether the systems are running properly and are fairly constantly available for use. If you put those systems in the cloud, you have to negotiate a service-level agreement with the cloud provider that addresses all aspects of the computing systems operating properly and being available enough of the time.

This is specialized contacting stuff, so you can’t really do it without a lawyer. Template cloud computing contracts offered by vendors tend to be one-sided against you. You will incur substantial legal bills to negotiate the deal. Formulating the deal will take a lot of management’s time. Once you’re in the cloud, someone will have to oversee the performance of the cloud provider, both in terms of technical performance and contract compliance.

If you have just a small or medium-sized business, you may not have significant leverage in negotiating with a cloud service provider. Even then, you may be able to negotiate a small addendum to the standard cloud services agreement that covers your most important concerns. Even that will require substantial lawyer involvement and management attention.

That said, here are a few issues that I recommend business owners keep an eye on when having their lawyers negotiate a cloud services agreement:

• What is the minimally acceptable level of uptime functionality for your computing system, and when it will be down for scheduled maintenance?
• What support will you get for technical failures, and what about help-desk support for confused users?
• Data security and confidentiality terms must be carefully crafted, including (i) limiting the geographic locations where data may be stored, (ii) requiring the cloud provider to comply with data security laws, and (iii) addressing who pays the cost of dealing with any data security breaches.
• Make certain you have adequate legal rights to use the software in the cloud in the ways you may need to use it.
• You may later want or need to switch cloud providers or to take functions back in-house, so the contract needs to provide for how you can take your data (and perhaps your software) in a usable format as quickly as you need and without major obstacles.

Good luck!

by John B. Farmer
Published in the Richmond Times-Dispatch
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