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Midsize
businesses who are negotiating business continuity
services contracts should consider a number of key
issues that can mean the difference between a good
deal and a bad one. Among the important contract negotiation
issues to discuss are:
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Syndication
vs. Dedicated Services
The syndication or subscription approach to disaster
recovery – in which the external services
provider (ESP) sells access to disaster recovery
resources to multiple enterprise clients is usually
more economical than dedicated in-house services
maintained by the enterprise itself. Nonetheless,
enterprises should check for any exclusion zones,
and ensure that all stakeholders are satisfied
with the risk that invocation of disaster recovery
services is not guaranteed. |
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Contract
Duration
The best way for a midsize enterprise to mitigate
the risk of paying prices above market rate is
to restrict the length of the contract. Gartner
advises three-year contracts for most enterprises.
Shorter-term contracts are likely to be too expensive,
because they require ESPs to meet their profit-margin
targets much more quickly. Longer-term contracts
usually cause enterprises to pay substantially
more than the market rate after the third year.
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Competitive
Bidding
“Comparison shopping” is likely to
result in much lower costs, justifying the time,
expense and inconvenience of the competitive bid
process, therefore enterprises should always solicit
bids from at least two ESPs. This is especially
true when contracts are due for renewal. |
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Annual
Increases
Many standard contracts allow ESPs to increase
fees by between 5 - 8 percent annually. These
stipulations are unacceptable and should be removed
from all contracts. |
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Declaration
and Occupancy Fees
Some ESPs charge declaration fees – one-off
charges payable by the enterprise in the event
of a disaster – and occupancy fees –
the daily use charges incurred during a disaster.
Depending on your insurance coverage for these
fees, you may choose whether to accept declaration
fees in return for lower daily use fees, or eliminate
them and accept higher daily use fees. These fees
vary significantly and are highly negotiable. |
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Pricing
Structures
Midsize enterprises should require that proposals
be structured as schedules, usually based on technology
type, service or enterprise location. This approach
offers enterprises greater visibility of cost
structures, and enables them to estimate the cost
of adding or removing schedules. |
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Addition
of New Resources
If enterprises wish to add resources, the contract
period for these resources should end at the same
time as the overall contract. You may pay higher
prices for these additions because the contract
term is shorter, but you will benefit from more
straightforward renewal processes in the future. |
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Termination
Clauses
Most standard contracts carry highly punitive
early-termination provisions, so it is in the
best interest of the enterprise to consider exit
strategies for changes such as being acquired,
closing an office, or abandoning a given technology.
Negotiate a buy-out schedule in advance that makes
early termination a viable option. Additional
clauses should be added to cover significant potential
changes in enterprise operations with a nominal
termination penalty under the specified circumstances
following a reasonable notification period such
as 90 days. |
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Test
Time
ESPs attempt to limit test time as it is the single
most important factor affecting their costs. In
fact, most standard contracts guarantee only a
single eight-hour time slot, which is rarely adequate.
Enterprises should examine their test requirements,
specify requirements in advance, and agree on
a schedule before the contract is signed. |
Standard
business continuity contracts normally contain many
provisions that may prove unnecessarily costly and
obstructive to the recovery of business processes.
By paying close attention to contract details, you
can benefit from both lower overall costs and better
services from external services providers.
Learn more about contract negotiation now.
Click
to attend the free Gartner Webinar, Midsize Business
Road Map for Selecting IT Vendors.
Reference
Research Note
Negotiating a Sound Business Continuity Contract
Publication Date: September 21, 2001
Authors: S. Mingay, D. Scott, R. Witty, Gartner, Inc.
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