
Over the past few years, many organizations have implemented internal technological tools and developed electronic platforms enabling them to pursue their activities via teleworking. The arrival of the COVID-19 pandemic has accelerated this implementation process for many organizations, which are now turning to technology service providers to ensure, among other things, business continuity and cloud services.
While technological tools are essential to an organization, especially in times of sustained telecommuting, it’s important to conduct a thorough analysis of certain elements before entering into a service contract. In this article, we’ll take a look at the 6 elements you need to consider in your analysis.
1. Service levels
All service provider contracts contain a section on service level agreements(SLAs). This agreement defines the service thresholds and availability that the supplier undertakes to respect for the duration of the contract. It also describes network capacity and maintenance arrangements. It may also contain restrictions imposed on the customer, such as the supplier’s hours of service, or usage limits designed to ensure the smooth running of the network.
Standard industry practice is to offer the customer a service credit if the supplier fails to meet the thresholds described in the SLA. However, it is the customer’s responsibility to request this.
It is essential that the customer validates that the following elements are covered by the contract:
- service level agreement
- the supplier’s commitment to the mean time to respond to a service problem or network failure (also known as Mean time to respond “MTTr”)
- the supplier’s commitment to the Mean Time To Repair (MTTR) for any network problem and the restoration of functions.
- the scope, timing and duration of maintenance periods, and how customers are to be notified in advance
- the value of credits that may be offered to the customer in the event of default by the supplier, their limits (as to the value of a credit or the number of credits the customer may avail himself of) and the means by which the customer may obtain them
- the possibility for the customer to terminate the contract without penalty, in the event of recurring default by the supplier.
2. Right to cancel
Contracts for the supply of technology services usually limit customers’ termination rights, and may also provide for automatic renewals.
The client should therefore address these issues at the outset of the due diligence process in order to validate :
- whether it can terminate the contract in the event of default by the service provider
- whether it retains any recourse against the supplier in the event of termination
- if he incurs costs if he wishes to terminate the contract early and the supplier is not in default
- if it can prevent automatic renewal
- whether the service provider has the option of terminating the contract in the event of customer default, and if so, what prior notice should be given to the customer?
An early termination clause also implies the need to examine the consequences of such termination. If the continuation of the customer’s business activities depends on the provision of technology services, the customer must ensure that the following basic questions are answered:
- Does the customer’s business require the service provider to commit to maintaining the service (even in the event of default or termination) until the service is transferred to a new provider?
- Does the customer require a license or access to source code in order to carry on business?
- Does the customer suffer a loss or incur significant costs to transfer the service to another provider?
3. Contractual definition of force majeure
Normally, the service contract contains a clause relating to the service provider’s non-liability in the event of force majeure. The customer is advised to carefully analyze the events that will be contractually considered as force majeure events to establish this non-liability. Examples include subcontractor negligence, network sabotage, material delivery delays or events such as strikes or lockouts. Basically, a force majeure event must be unavoidable and beyond the control of the service provider.
In any eventuality, the customer must take into account the guarantees offered by the service provider in the event of force majeure and the means put in place to compensate for any service interruption.
When a service contract is signed during a pandemic, the supplier undertakes to offer its services in a very specific context, and cannot subsequently refer to it as a case of force majeure.
4. Network owner or service reseller
Before signing a service contract, customers are asked to confirm the role of their supplier. Is the supplier a network owner or a service reseller? In the case of a customer/reseller relationship, there are a number of important additional considerations.
Firstly, in such a customer/reseller relationship, the customer will generally find himself in a tripartite relationship where he has no control over the contractual relationship between the reseller and the original supplier. As a result, the customer may become a victim of this relationship if the reseller defaults or becomes insolvent.
In addition, the customer’s negotiating power with a reseller is sometimes more limited. The reseller is likely to systematically offer the terms and conditions granted by the original supplier, making it more difficult for the customer to negotiate more extensive service agreements, more defined maintenance periods or higher credits.
The customer must also consider who is responsible for technical support: the reseller or the original supplier? Furthermore, the reseller must retain contractual responsibility for the services offered, without the possibility of passing the blame onto the original supplier, with whom the customer has no contractual link.
Finally, the presence of a reseller is also a factor to consider when negotiating the aforementioned termination clause. Does the reseller have the right to demand reimbursement from the customer of the termination fees charged by the original supplier? Will the customer have access to his data or account with the original supplier if the reseller defaults or becomes insolvent?
5. Limitation of liability and damages
The customer should examine the limitations of liability proposed by the service provider. As these limitations generally exclude any other type of warranty or representation not provided for in the service contract, the customer should ensure that the contract actually contains all the warranties that were negotiated or represented when the services were presented.
Limitation of liability clauses sometimes limit the sums that the service provider may be called upon to pay to the customer in the event of damage. These sums are often established by a precise calculation based on the monthly instalments paid by the customer under the terms of the contract. The customer must therefore ensure that the amount ultimately payable by the service provider can reasonably cover the damages incurred.
6. Data centers
Data center operations have grown by leaps and bounds in recent years, due to the increasing importance of data processing for many industries. We invite you to take a look at some key considerations before entering into a colocation contract by consulting our bloG article on the subject.