The following article was prepared by Mike Taylor, C.P.M., for distribution to ISM affiliate newsletters

Cloud Computing
July 2010

What we need to know before entering into a contract for Cloud Computing Services.

Already some companies and government agencies have adopted cloud computing technologies for business processes. There have been many news reports over the last few years talking about Cloud Computing as well as successes some organizations are having and reservations or delays that others are experiencing. Before your company decides to trust critical business processes to this not-very-new technology, and asks procurement to issue a service contract, there are a few things I think you should consider.

 Cloud computing is a new name for an old internet service concept. Remember the terminology “Application Service Provider” in which a business contracts for web-based software services?  Have you done online banking or logged in to Amazon to order books?  If so, you have “been in the clouds” and that’s about all it really means. Think of cloud computing as a vendor offering to outsource one or more aspects of a business data process.  Examples of cloud computing include Web-based e-mail applications and common business applications that are accessed online through a browser, instead of through a local computer.

These can be very valuable services to a business. Considering the cost of investing in capital equipment, software, maintenance, technical support, buying a ready-made online service can be a considerable short-term cost savings. In addition, the time to purchase and set up a network environment vs, signing a contract today and starting use tomorrow can be critical to a time-sensitive business process.

For example:  Assume your company has a major accident or product recall. The CEO might want to set up a network for people to log in and submit claims, reports, pictures, request data, etc. This could be hundreds or thousands of people from all over the world.  And the CEO wants to turn it on today. Would you realistically have time to buy the equipment, obtain the technical resources and implement? Wouldn’t it be easier to call a service provider and write a notice to proceed? Obviously! The Department of Commerce had exactly this same issue when they were directed to implement the “cash for clunkers” program in less than a month.

Here are some other examples of services which fall under the “cloud” umbrella.

  1. Online shared application = Google Gmail.  Users log in to vendor owned system and use the vendor’s software to perform business functions. Vendor is responsible for the software and what it does, buyer just contracts for the service.  A business startup doesn’t need to set up an email server, they can just contract with Google to provide email accounts using the new company’s business name instead of the Google “G”mail.  Google already has the servers, the technical staff, the user security, etc. Adding your company name to the email accounts is not a big effort.

  2. Online user-controlled application =  Web site, hosted on web server. Buyer uploads and manages content which is running on the contractor-owned hardware and software. Consider setting up an online store for your business or organization. For a fee, the vendor provides the internet hosted computer – and we would set up, upload and maintain the catalog of products to sell. This could be on vendor provided software or purchased software that is also uploaded to the web server.

  3. Online data center = Buyer rents hardware rack space from the vendors and installs and operates the complete system. Vendor is responsible for the data center, hardware, and maintenance of the facility (electricity, cooling, disaster recovery, etc.).

  4. At the extreme end, we could literally outsource our complete IT operation, user help desk and even include leased desktop computers or laptops.

  5. This is an interesting example. This NASA vendor provided and operates a complete mobile data center housed in a shipping container. How cool is that! When a NASA scientist wants more computing power, just plug it in.  Read more.

Regardless of what we call it, using online data and computing service can include a number of hidden risks along with the potential benefits.  Writing a contract to obtain those services and outsource a company’s data processing is a complex task. Pricing structure notwithstanding, there are many other issues that should be considered for negotiation and inclusion in the contract terms. We discussed some of these issues several years ago when migration to e-commerce and e-marketplaces was a hot topic (both could be considered forms of cloud computing). Many of the risks that need to be addressed in our contracts are the same.

Here are some common threads to consider:

  1. User control, access and training: Who will respond to user questions or problems. Will the response to questions be timely?  How can a user access be terminated (with prejudice) in a hurry?

  2. Data security, data ownership, backup: Are security systems in place and are they adequate to protect your sensitive corporate information?  Are the databases backup up? What is the process to restore data that is accidentally erased? Who owns the data on the vendor computers? Is the vendor obligated to erase the data when the contract is terminated? Are there penalties for disclosure or loss?

  3. Functionality: Are there up-time guarantees? What is the restore time if the system goes down? Will software and operating systems be automatically updated to new versions and will there be a cost to do so? Who is responsible to maintain legal licenses to use the software?

  4. Data archiving: Is there a plan to archive data in away that meets legal document retention requirements? Can records be retrieved? If  legal discovery notice is received, will the data be subject to search and seizure?

  5. Can the service be terminated for any reason? Can your data be downloaded to transfer to a competitor’s system?

Obviously cloud computing services are already in use by many companies. As the applications and processes become powerful, cost and time pressure to use shared applications and online computing will become significant. It will become a contracting opportunity for many of us in one way or another.  

Still don’t believe it’s becoming the next hot business strategy? Take a look at this web site  Cloud Computing Journal

Before writing a contract, ask questions of all the various vendors. It’s a great way to gather information;  as the salesmen all try to convince you that their solutions is better, they’ll give you hints about weaknesses to address in the specification. I’d suggest doing some reading about cloud computing services, and making some notes specific to your company and possible issues. Then you’ll be ready to add value when the CEO wants to jump on the band wagon.

Here is an objective review of Cloud Computing processes and alternatives by the GAO.  The second report is an assessment of government agencies problems and issues in implementing cloud computing services. I highly recommend reading them if you want to get some background and starting thinking about future involvement.

One of the  benefits [?] being promoted about Office 2010 is the enhanced ability to shared data online. An executive in your company is probably already thinking about using this capability. It’s just another form of cloud computing. You can read more about Office 2010 online collaboration and start formulating questions or concerns.

And of course use the power of Google to find thousands of news articles, vendors and reports.

Good luck in your implementation.

Mike Taylor


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