How to Negotiate Cloud Contracts

IBM-logo-promoTighter budgets are an unpleasant fact for state, local, and federal governments, and they appear to be here to stay. At the same time, citizens’ demands are not shrinking: they expect their government leaders to provide better, more innovative services to meet their changing needs. Likewise, government employees continue to demand better solutions to make them more productive and effective.

In lean budget times, federal, local and state agencies are striving to balance the need to provide better services and work more efficiently with trying to reduce costs. But outdated technology and poorly integrated Information Technology (IT) systems represent a major stumbling block to accomplishing those goals.

What’s the solution? Where can local leaders turn to lower IT costs while improving performance, security, and expanded services? And what lessons and insights can they provide to our federal government leaders in addressing this IT challenge?

The answer lies in cloud computing: a secure, flexible, and scalable IT platform for cash-strapped agencies at all levels that can evolve to meet their needs.

While local agencies are best served by adopting cloud computing solutions built on open standards, not proprietary IT infrastructure, they cannot bypass key contracting issues. More and more, local leaders are facing a multitude of challenging legal and contracting roadblocks that, if not addressed properly, will create more cloud “lock-in” and stop cloud adoption dead in its tracks.

Recently, the IBM Center for The Business of Government, working with researchers at the University of North Carolina (UNC) at Chapel Hill, sought to analyze the major contracting issues confronting cloud adoption.
UNC analyzed five different public sector agencies in North Carolina, ranging from a local government to a K-12 public school district, each with a unique set of requirements and needs. For each, UNC conducted a detailed analysis of 12 major issues that need to be addressed in all cloud contracts. These included pricing, data ownership, access, data privacy and storage.

As UNC researchers reviewed these examples, they found three key lessons and best practices that can and should guide officials in moving successfully to the cloud.

First, IT professionals cannot select cloud solutions in a vacuum: They need to work in close collaboration with legal colleagues to create a technically and legally sound contract. In many cases, researchers found that IT professionals evaluated contracts with limited knowledge of legal issues and perhaps even signed the contract without appropriate legal oversight, exposing them to substantial legal risk.

In other cases, legal professionals evaluated the contract solely on legal merits without a comprehensive understanding of important technical issues inherent to the agency. With more collaboration, agencies can ensure they get the right solution that meets key technical and legal thresholds.

Second, agencies should negotiate contracts, not just take cloud solutions at face value. Simply accepting vendor-supplied master service agreements and terms is just bad business. Unfortunately, this appears to be happening too often. The solution: By simply involving key staff, including general counsel, IT experts, and procurement experts, agencies can ensure they receive adequate functionality and service while protecting themselves contractually.

Third, and perhaps most important, agencies must realize that they cannot remove all risks from cloud contracts. If a government needs or wants a particular cloud service badly enough, or if it deems the risk to be low, then it may be more inclined to accept “click through” contracts, similar to those found on social media sites like Facebook or Twitter.

To negotiate a cloud contract with a provider, the organization has to be willing to be firm and possibly walk away, or consider an alternative provider. This risk calculation also requires them to have a clear understanding of what contract provisions are must-haves versus nice-to-haves. For example, if a local city ordinance has been passed that specifies non-discrimination in a more restrictive manner than federal or state law, the contract must reflect compliance with that ordinance, hence deeming those provision a must-have.

The incredible potential of the cloud enables state and local agencies to meet the growing IT needs of their citizens and employees as they strive to create a more efficient, citizen-centric environment — while staying on budget. As they make key investments in the cloud, government leaders need not overlook key contracting and procurement issues that will stop this IT evolution before it gets going.

To learn more about IBM’s Federal Cloud Innovation Center, click here.

Bio: Dr. Jane L. Snowdon is Director and Chief Innovation Officer, IBM U.S. Federal Government. She is also the leader of the new IBM Federal Cloud Innovation Center in Washington DC. She co-chairs the Cyber Security Education and Workforce Development Working Group with the Department of Homeland Security and is a member of the Intelligence and National Security Alliance (INSA) Council on Technology and Innovation.