Business Technology

Friday 19 September 2014

Cut the risk of fallout from your IT provider going bust

Rachel Spencer

Published 12/06/2014 | 02:30

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What steps can you take to avoid much of the fallout of your provider going bust and how can you minimise issues in transitioning to a new provider?

It's a nightmare scenario: you have invested heavily in a new IT infrastructure, sourced the latest software and cloud services, and have found the right provider to help grow your business. Overnight the provider has become an integral part of your new business model.

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So what happens if the provider goes out of business? The hosting and maintenance services you were relying on are no longer available to you; you may no longer be able to access your data your provider stores in the cloud; and it could mean even the software you were using may no longer be available to you.

What steps can you take to avoid much of the fallout of your provider going bust and how can you minimise issues in transitioning to a new provider?

The first step is identifying the software, services and providers that are of critical importance to your business. This may be the provider of your cloud storage service, your CRM system, your payroll system or your email provider. Once identified, you should monitor these providers (in particular, any financial irregularities, significant changes of personnel internally, etc) and your contractual agreements with them to ensure you are best placed to anticipate a business closing its doors.

Indeed, before you even start transferring data to the cloud, you should be considering what you would do if your provider was suddenly out of business. That means drafting a cloud strategy and minimising the risk of major fallout in the event the provider goes bust. It is important to look at the following points:

* Ownership of data in the cloud: agreements should stipulate you retain absolute ownership of any data held in the cloud to avoid it becoming compromised by an insolvency procedure.

* Back-up data: agreements should provide for regular backing up of data by the provider offline and for you to be permitted access to a copy of the back-up data in the event of a provider going out of business. This can help you rapidly port your data to another capable provider.

* Termination assistance and migration costs: agreements should provide for the provider to notify you in advance of any intention to enter an insolvency procedure and to agree the level of assistance required (both costs and resources) in porting your data prior to that event.

Where you are relying on a third party's software, ensure a right of access to the source code of important software.

For agreements where you are paying a licence fee to a third party to use its software, you should always ensure you have access to the source code of that software. This way you can maintain and modify the software even if the developer goes out of business.

The most effective way of doing this is through an "escrow arrangement", whereby an independent third party holds the source code and releases it to the customer in certain specified circumstances.

Escrow arrangements are common place in the IT sector given the critical importance of source code. There are several providers of these services and the costs involved are in general reasonable.

Responsibility for discharging escrow fees does not always lie with the customer either and often agreement can be reached that the costs be partially covered by the annual maintenance or licence fee paid to the provider.

If an IT provider goes bust, the fallout can be disastrous if appropriate steps have not been taken by the client.

All businesses should examine their IT and software arrangements and consider the steps they can take now to try to mitigate such risks.

Rachel Spencer is part of the intellectual property and technology unit at solicitors LK Shields.

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