The cloud hanging over contract evaluation – how can you procure cloud services compliantly?

There is a real difficulty with buying a cloud based service through an FTS process. The problem is not choosing a procedure or defining the requirement – it is the contract terms.

Cloud services are typically provided to all (or at least the vast majority) of customers on the same terms and conditions – harmonisation of the service and the basis on which it is provided is typically what enables cloud providers to offer improved value for money. Cloud services also generally offer reduced technical risk, as they are usually services that have been tried, tested and continuously improved across a wide customer base.

Often cloud service terms and conditions impose terms which would in other scenarios be considered onerous – low limits of liability, and significant exclusions for certain categories of loss. However, customers need to balance any risks presented by such onerous terms against the potential value for money and technical risk benefits of a move to the cloud.

If going down the FTS route, it seems to makes sense to procure cloud services via an open or restricted procedure – the service requirement is known and can be readily defined. However, buying through the open or restricted procedure requires the customer to either prescribe the contract which will apply to the services, or to define a basis on which contract terms will be evaluated.

If the customer simply allows potential suppliers to bid on the basis of their own terms and does not evaluate those terms, then it is difficult to see how any evaluation would be an “apples with apples” comparison – the terms on which a service is made available form a key part of the commercial offering, and will vary significantly between competing cloud providers.

If the customer drafts their own bespoke terms (which would be a standard approach for other types of service), it is unlikely that some cloud suppliers will accept them, and where suppliers do, it is likely to have a material impact on pricing as it will mean that the provider cannot roll out their standard service offering and terms.

This is a difficult area without a perfect solution.

In a number of cases, the relevant cloud service will be available through the CCS G-Cloud framework which, whilst it can have its own contracting challenges, is a well used model.

However, if the customer needs to buy through an FTS procurement, then customers may want to consider the use of Key Commercial Principles setting out the customer’s expectations (which need to be realistic and take into account the position in the cloud marketplace) on key contractual provisions. The customer can then evaluate the extent to which the terms which suppliers are proposing comply with the KCPs, with deviations scored dependent on the extent of the risk transfer. This should provide a reasonably transparent mechanism to evaluate different supplier terms. If this approach is followed, it would be prudent to include the right to reject any supplier whose proposed terms include provisions which are unacceptably onerous when compared to general market practice.

We are not aware of any procurement challenges from cloud providers relating specifically to evaluation of their terms and conditions, but given the difficulties in this area, this could be a space to watch. For the moment, it is an issue which remains a little, well, cloudy.