The following list sets forth ten questions that a company purchasing cloud services should ask the service provider when negotiating fees for a cloud services agreement, although this is not meant to be an exhaustive list. No entities or persons may be held responsible for the use which may be made of the information contained in this list.
1. Is the customer purchasing Infrastructure as a Service (IaaS), Platform as a Service (PaaS) or Software as a Service (SaaS)?
"Cloud services" is a general term for a model that allows on-demand network access to a shared pool of computing resources over the internet. However, there are many different varieties of cloud services, such as Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS). The customer should evaluate what functions the cloud services need to perform and ensure the cloud services agreement obligates the service provider to provide cloud services with the customer's required features.
2. Do the subscription fees for the cloud services include the provision and maintenance of the required hardware to provide the cloud services?
One of the main benefits of using cloud computing is that the customer does not need to spend as much money on hardware and infrastructure. If hardware or infrastructure are necessary to provide the cloud services (e.g. servers), an attorney should ensure that the cloud services agreement requires the service provider to provide, maintain and upgrade the hardware and infrastructure, at its sole cost and expense.
3. Are the costs of the core cloud services included in the recurring subscription fees?
Many cloud services have a set of core functions that comprise the primary component of the service offering. The customer should ensure the cloud services agreement does not permit the service provider charging the customer additional fees outside of the recurring subscription fees in order for the customer to beneficially utilize the core cloud services. Additionally, if the service provider offers add-ons and optional features outside of the core cloud services, an attorney should ensure that his or her client must affirmatively request such add-ons or optional services prior to being billed.
4. Which fees recur, which fees are one-time or upfront, and which fees overlap?
The customer generally needs to pay a recurring subscription fee to the service provider to maintain its access to the cloud services. However, there may also be one-time fees, such as initial set-up fees, or upfront costs the customer must pay to implement the cloud services or to migrate data. An attorney should ensure that he or she understands the breakdown of the upfront and recurring fees to avoid being double charged for the same services. Additionally, if portions of the customer's cloud solution require services to be performed by a third party, the customer may need to enter a separate agreement with, or pay additional fees to, that third party.
5. Is there a "catch-all" provision in the agreement that may add unexpected fees?
An attorney should ensure all fees that his or her client can be charged under the agreement are clearly delineated. Some agreements may include a "catch-all" provision permitting a service provider to pass on additional costs to the customer. Therefore, it may be a good idea to include a "no hidden fees" provision stating that the service provider has no right to charge the customer any fees not expressly set forth in the fee section of the agreement or otherwise expressly permitted by the agreement. This helps prevent the customer from being surprised by unexpected fees.
6. How are the fees calculated and monitored?
An attorney needs to understand what metrics the service provider uses to calculate the fees invoiced to the customer, and this often depends on the nature of the provided cloud services. For example, the service provider can charge flat recurring fees or fees that fluctuate depending on metrics, such as the number of users, the number of potential users, the amount of storage purchased, or the amount of customer use. Understanding the calculation of fees allows an attorney to then address provisions for monitoring those metrics and resolving any disputes.
7. What types of costs are the service provider passing through to the customer and how much are they?
Service providers often pass their administrative costs (e.g., insurance costs, shipping costs for equipment, etc.) on to the customer either as a separate charge or as part of the subscription fees. An attorney should try to negotiate a provision into the agreement preventing the service provider from passing costs onto the customer that are outside of the customer's control or not transparent to the customer. A customer should also require the service provider to receive the customer's advance approval of any pass-through costs.
8. Is there an opportunity for the customer to negotiate fee discounts into the cloud services agreement?
It is a mistake not to at least ask whether the service provider will offer discounts on its prices and how the customer can qualify for such discounts. For example, some service providers will offer "waterfall" pricing, where the customer may receive volume discounts based upon the number of users or data storage amounts (i.e., users 1-10 cost $10 per user, users 11-25 cost $5 per user, etc.). A customer should include provisions regarding the terms of any offered discounts to ensure those offered discount terms do not change.
9. Who bears the costs?
Whenever a party undertakes an affirmative obligation pursuant to the agreement, it is important for an attorney to ask, "Who bears the costs?" For example, many indemnification provisions require the indemnitee to provide the indemnitor with reasonable assistance. If the customer is the indemnitee, the attorney should ensure the agreement requires the service provider to reimburse the customer for the out-of-pocket costs incurred in providing such assistance.
10. If the customer orders additional cloud services, add-ons or features during the term of the agreement, what is the procedure for customer invoicing?
If, for example, the customer is paying the service provider an annual fee based on one hundred users and the customer wants to order an additional one hundred users during the agreement term, what is the procedure for invoicing the customer? Will the service provider invoice the additional one hundred users to the customer immediately, but prorate the annual fee for the remainder of the then-current year? After the end of the then-current year, will the service provider invoice the customer for all two hundred users on an annual basis in the future? These are some questions to ask when the customer is able to order additional cloud services, add-ons or features during the term of the agreement.
This list was prepared by Arent Fox. For more information on Arent Fox, go to www.arentfox.com.
If you have any questions about this checklist, please contact Alan Fishel, Partner, Arent Fox LLP, 202.857.6450, Charlyn Ho, Associate, Arent Fox LLP, 202.350.3614, or Michael Stone, Associate, Arent Fox LLP, 202.350.3668.
