Gartner talks cloud contract risks

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," Alexa Bona, research vice president at Gartner, said. "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."

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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," Frank Ridder, research vice president at Gartner, said.

"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."

About Gartner

Gartner, Inc. is the world's leading information technology research and advisory company. Gartner delivers the technology-related insight necessary for its clients to make the right decisions, every day. Gartner is a valuable partner to 60,000 clients in 11,500 distinct organizations.

Founded in 1979, Gartner is headquartered in Stamford, Connecticut, U.S.A., and has 4,500 associates, including 1,250 research analysts and consultants, and clients in 85 countries. For more information, visit www.gartner.com.

Edited by Kevin Scarpati