IT procurement or sourcing managers challenged with finding sourcing options that reduce costs at tolerable risks should examine nine contractual terms to reduce risk in cloud contracts, according to Gartner, Inc. The cloud delivery model is gaining popularity, but it includes risks that are often unclear or overlooked when assessing the appropriateness of the sourcing model.
“Cloud solutions often appear to have lower initial and switching costs than
traditional solutions, but include hidden costs and risks, and require unique
terms for contract protection, compared to traditional arrangements,” said
Alexa Bona, research vice president at Gartner. “Many cloud providers appear
reluctant to negotiate contracts, as the premise of their core model is a
highly leveraged approach. The starting point contractually often favors the
vendor, resulting in a potential misalignment with user requirements.”
When assessing cloud offerings’ procurement and sourcing, executives need to
understand what can be negotiated relative to risk elements, what they need to
pressure cloud providers to offer, and what will likely not be negotiated.
“Cloud markets are generally still very competitive, and it is important for
sourcing and procurement executives to leverage competition to optimize
negotiations. They should be prepared to walk away from deals, if some of the
risk elements are not satisfactorily addressed,” said Frank Ridder, research
vice president at Gartner. “As this computing model is relatively nascent, we
believe that, over time, the combination of buyer pressure, and a provider
desire to reduce the length of negotiation cycles and number of customized
deals will mean that some terms will evolve to more of a middle ground, rather
than the current contract practices, which are mostly provider-centric.”
Additional information is available in the report “IT Procurement Best
Practices: Nine Contractual Terms to Reduce Risk in Cloud Contracts. The report
is available on Gartner’s website athttp://www.gartner.com/resId=1599115.