14 Oct 2011

What to look for in an IT contract

With the rise of cloud and services-based computing, the contracts between businesses and their IT partners are becoming increasingly important.

Yet, whether it’s cloud computing, a software service or a network service, the contracts offered by different providers can vary a great deal.

So what should you look for? Here are a few things SMEs should consider:

Scope and responsibilities

Make sure that the contract clearly stipulates what services, hardware, software and tasks it covers.

Is it clear about what level of support is offered, and things like how much bandwidth you can use?

You don’t want to be in a situation where you have different ideas to your provider as to who’s responsible for what. Your contract should reflect your understanding of the relationship you and the provider are going to have.

Service levels

If your contract is for something like a cloud or network service, pay special attention to the specified Service Level Agreements (SLAs).

SLAs guarantee minimum levels of service availability and quality. As the end user, you want them to be as stringent as possible.

Most importantly, make sure that your contract spells out how the service levels will be enforced. There must be real-world penalties.

To evaluate whether the penalties are appropriate, think about what the cost of a service failure will be to your business, and make sure that the penalties in some way reflect this.

In addition to uptime-oriented SLAs, you should also consider SLAs around provisioning (for cloud services especially). These govern how long your provider can take to make changes or upgrades to your service. While they might not seem significant when you first sign, they’ll become more important down the track.

On the same note, it’s important that your contract be flexible when it comes to scaling your service up or down – you don’t want to be in a situation where you’re locked into something too small for your needs.


What will happen to you if your provider sells their business?

Acquisitions are common in the IT world, and it’s important that your contract sets out what will occur should your provider change hands. The more flexibility afforded to you, the better.

Be aware that some IT contracts carry automatic rollover clauses which activate to renew a contract when it has a month or two to run.

This can be positive or negative feature depending on the service and what you’re looking for – just be certain that you know about it.

Intellectual property

Contracts should make clear that your data and intellectual property belongs solely and always to you.

Make sure that you have continuity of access to your information in the event that you or your provider decides to end your relationship. In the same vein, the contract should set clear rules about termination – who is able to terminate it, in what circumstances, and what will happen to service delivery and payments if they do.

Summing up

The more popular cloud- and services-based computing becomes, the more important managing relationships with IT providers will be for SMEs. Having the right contract in place from the outset will put your business on a solid footing.

(This blog post was first published on the SmartCompany website on October 13 2011).