Oh dear, our datacentre provider has gone bust

Ensure that you enter into a sensible contract with your datacentre provider and factor in all possibilities including them going bust

There are lots of reasons why moving to a co-location datacentre facility, or to a hosted or IaaS/PaaS/SaaS (infrastructure, platform or software as a service) technology model, is good for the business. For a starter, the facility is owned by someone else – ensuring that it meets requirements and managing the facility is their...

problem.

Then, there is predictability – a long-term agreement can be put in place with the majority of service providers that covers everything needed (datacentre space, connectivity and facility services for co-location; all this and the hardware and even the software for hosted or I/P/SaaS). But what if that predictability is cruelly shattered?

Remember when earlier this year 2e2 datacentre brought down the shutters and its administrators asked customers for nearly £1m in funding if they want uninterrupted services and access to their datacentre facilities?

There are a range of things that can go wrong with a datacentre or a co-location service provider. 

Datacentre contract clauses

The first one is when a provider exercises a contractual right that you had missed when you signed on the bottom line. Many providers will have clauses that allow them to review your charges when they themselves are faced with a substantive change. Obvious ones here are areas such as if the government changes VAT rates, the tax will be charged accordingly. 

Not-so-obvious ones could be in areas such as energy pricing – if a provider has not locked in a long-term energy deal with their energy supplier, it will have left itself open to spot pricing – and with energy prices being volatile, it may have to “renegotiate” its pricing with you – which often just means the customer finding this out when a higher-than-normal bill lands on the desk.

Datacentre provider's merger or acquisition

The next surprise could be that your provider is acquired. This may make no difference; it could even be good news if the company acquiring them has the money and the resources to improve the services you are receiving or to give better coverage or reach on a global basis. However, it could be also be that the acquiring company is one that you have made an active decision to avoid, for whatever reason. 

The long-term contract that you had signed could well tie you in to a company that you do not want to be associated with – which may lead to bad feeling and a lack of trust between the parties.

Failure of the service provider

However, the biggest issue that can hit any organisation using an outside IT service provider is the failure of the outside company.  Yesterday, everything seemed OK; today, there just isn’t any service and no-one is returning calls. This is the worst possible news – so how can you attempt to rescue yourself, along with improving other issues?

Everything is down to the contract

In essence, the basics come down to the contract. In talking with customers who have gone for agreements with large service providers, Quocirca, the analyst firm, has often heard that the contracts have a boilerplate language and put all the risk on the customer, with very little being on the provider. 

This just isn’t good enough, and as there is plenty of competition in the market, it is possible to ensure that you get a provider who is willing to enter into sensible negotiations and come up with a bespoke contract that meets both parties’ needs.

As a starting point, it is necessary to see how major changes to the cost base of the provider will be dealt with. If it has not negotiated energy contracts properly, and yet you have a bullet-proof fixed price contract with the provider, this may look good.

However, while you continue to pay your fixed price, the provider is going bust because the margins its business model is predicated upon have been hit. Ensure that the provider has a fixed price energy contract in place that mirrors your contract with it (within reason – the provider cannot match every customer’s contract in this way), and also discuss how any changes in energy price will be dealt with between the two of you. Compromise in advance is always better in these situations than conflict after the event.

The contract should also allow you as the customer to review your position and call a halt to the agreement with sufficient notice in the event of a material change to the status of the provider, such as through acquisition. 

It may be surprising, but the contract should also be the place where the failure of the datacentre service provider is covered. This is not an area that many providers are keen to discuss, as just talking about it is a tacit agreement that their organisation is just as mortal as anyone else’s.

However, on failure, all the equipment that was owned by the provider becomes the property of the administrator, whose job is not particularly to run a business, but to optimise the return to the creditors. Unless this involves being able to find a buyer for the business as a going concern, the administrator is unlikely to have any interest in you as a customer whatsoever.

For a co-location contract, make sure that it is written into the contract that you can enter and retrieve your equipment at an agreed end of the contract or on the failure of the company.

For hosted or I/P/SaaS contracts, make sure that the contract covers that the data is yours, and that the company or its administrators have to allow you access to the data within an agreed timescale. If possible – and this will generally only be possible in the larger contracts – get a provider to agree that you can supply a network attached storage (NAS) device where your data can be backed up on a regular basis, so that if the provider does go bust, you can turn up in a van and take ownership of your device with all the data on it.

This still leaves the problems of moving the data to a new location with an equivalent application or service in place – this will have to be the subject of a further article.

In essence, the contract is king. Don’t just sign anything because it seems to be the way to do things. Negotiate from a position of strength and ensure that you go through all the provider’s clauses with a fine toothcomb. Otherwise, you are just gambling with your organisation’s future.


Clive Longbottom is a service director at UK analyst Quocirca Ltd and a contributor to Computer Weekly.

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