Cloudy contracts: CFOs need to step in

It's worth educating other business leaders about the nuances of contracting in this unfamiliar area.

CFOworld –

With software-as-a-service and other types of cloud computing becoming de rigeur at many companies, CFOs should be bringing other business managers up to speed on the basics of contracting.

In the past, CFOs could rely on IT to have the company's best interests at heart. But with so many applications, infrastructure, storage and more being hosted outside the company, finance has to make sure that contracts include language that protects assets and reduces risk.

Many business leaders working with a service provider might simply sign whatever contract they are handed, assuming it is a standard legal document. However, each organization has its own unique requirements, tolerance for outages, and expectations of uptime. Therefore, just signing on the dotted line could be harmful to the business.

To start, review the contracts already in place. Pick out language that you feel is essential and illustrative of the organization's needs. For instance, if you can't withstand an outage of more than 30 minutes, gather language from other contracts to that effect, as well as accompanying wording about reimbursements for downtime.

Next, consult your legal team to ensure existing contracts -- specifically what you hope to set as best practice -- are in line with business, regulatory and compliance demands. You don't want to propagate poor contract language.

Post these best-practice contracts in a centralized location that business leaders can easily access when needed. Not only will this save back-and-forth with other team members, it will go a long way to creating standard procedures across all service contracts. Also, with legal already signed off on certain language, you potentially could save the high cost of counsel contract reviews.

Once you have this legwork done, meet with all business and IT leaders who have authority to sign hosting contracts. Explain to them the danger to the organization posed by poorly constructed agreements. Then share the examples you've collected, highlighting critical contract information such as exit strategies (how you will get data back if you sever ties), and establishing emergency contacts.

Have your business leaders mock-negotiate an agreement to ensure they understand the contract process and your organization's needs. Put representatives from the legal department in the room during this exercise to immediately correct any improper moves. Also, encourage them to work in teams so they can establish buddies who will peer-review their contracts later -- saving a massive pileup on your desk.

Communications should be ongoing, so post new contract language trends and best practices as they arise. Also, don't be afraid to share ineffective agreement terms as they can be just as helpful.

By making the contract process all-hands-on-deck, you will ensure that everyone is on the same page, your assets are safeguarded, and your risk is minimized.

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