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Should cloud contracts be more transparent?

02 Aug 2013

Buyers of commercial cloud services, especially software as a service (SaaS), are finding security provisions inadequate.

A recent cloud survey by Gartner claims SaaS contracts often have ambiguous terms regarding the maintenance of data confidentiality, data integrity and recovery after a data loss incident.

As a result, the lack of clarity leads to dissatisfaction among cloud services users, while making it harder for service providers to manage risk and defend their risk position to auditors and regulators.

Gartner says that, through 2015, 80% of IT procurement professionals will remain dissatisfied with SaaS contract language and protections that relate to security.

“We continue to see frustration among cloud services users over the form and degree of transparency they are able to obtain from prospective and current service providers,” says Alexa Bona, vice president and analyst, Gartner.

At a minimum, Bona believes cloud services users need to ensure that SaaS contracts allow for an annual security audit and certification by a third party, with an option to terminate the agreement in the event of a security breach if the provider fails on any material measure.

“As more buyers demand it, and as the standards mature, it will become increasingly common practice to perform assessments in a variety of ways, including reviewing responses to a questionnaire, reviewing third-party audit statements, conducting an on-site audits and/or monitoring the cloud services provider,” Bona says.

Cloud users should also not assume that SaaS contracts include adequate service levels for security and recovery according to Bona.

“Whatever term is used to describe the specifics of the service-level agreement (SLA), IT procurement professionals expecting their data to be protected from attack, or to be restorable in case of an incident, must ensure their providers are contractually obligated to meet those expectations,” she says.

“We recommend they also include recovery time and recovery point objectives and data integrity measures in the SLAs, with meaningful penalties if these are missed.”

As no consensus exists about how commitments to security services should be described contractually, most SaaS vendors choose to commit to as little as possible.

It is crucial in Bona's eyes that some form of service, such as protection from unauthorized access by third parties, annual certification to a security standard, and regular vulnerability testing, is committed to in writing.

The lack of meaningful financial compensation for losses of security, service or data also represents an undesirable form of risk exposure in SaaS contracts.

“SaaS is a one-to-many situation in which a single service provider failure could impact thousands of customers simultaneously, so it represents a significant form of portfolio risk for the provider,” Bona says.

Therefore, the majority of cloud providers avoid contractual obligation for any form of compensation, other than providing service in kind or penalties in the event that they miss a service level in the contract.

SaaS users should negotiate for 24 to 36 months of fee liability limits, rather than 12 months, and additional liability insurances, where possible adds Bona.

“Concerns about the risk ramifications of cloud computing are increasingly motivating security, continuity, recovery, privacy and compliance managers to participate in the buying process led by IT procurement professionals," she says.

"They should continue regularly to review their cloud contract protection to ensure that IT procurement professionals make sustainable deals that contain sufficient risk mitigation."

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