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Cloud providers cave into more flexible contracts

Cloud providers cave into more flexible contracts

Contract terms can be a source of competitive advantage

Combined legal and market factors may force Cloud providers to offer more flexible contract terms, suggests new research from Queen Mary, University of London.

The research examines how and why Cloud providers have begun to negotiate standard contract terms to better meet cloud users' needs, minimise operating risks and address legal compliance obligations.

The research, by the Cloud Legal Project at the Centre for Commercial Law Studies at Queen Mary, is primarily based on in-depth interviews with global and UK cloud providers, Cloud users, law firms and other market players.

The report found that the top six types of Cloud contract terms most negotiated were provider liability, service level agreements, data protection and security, termination rights and lock-ins/exits, unilateral amendments to service features, and intellectual property rights.

"These are the key contractual issues of concern to users in the Cloud market at this relatively immature stage of cloud adoption," said professor Christopher Millard, lead academic on the Cloud Legal Project (CLP).

He said standard "one-size-fits-all" terms are often weighted in favour of the provider, and many are potentially non-compliant, invalid or unenforceable in some countries.

Many providers, he said, also do not take into account that users, especially in mainland Europe, have regulatory or other legal obligations and may need to demonstrate compliance to regulators.

Millard said: "To remain competitive providers may have to be more aware of user concerns, more flexible in negotiations, and more willing to demonstrate the security and robustness of their services.

"In the middle or low value markets, choice is still limited, and many contract terms are still inadequate or inappropriate for SME users' needs, as they may lack the bargaining power to force contract changes."

According to the research there are signs of market development though. Where large users have negotiated amendments and thereby helped educate providers about user concerns, these changes are likely to filter down to the middle market at least.

CLP research consultant, Kuan Hon, said: "The findings suggest that more customer-friendly terms are being demanded by large Cloud users such as governments and financial institutions, and being offered or agreed by niche specialist providers and market entrants, making contract terms a source of competitive advantage."

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