Cloud computing is a rapidly growing trend in IT sourcing that, along with Web 2.0 operators, social-networking sites, collaboration tools and software-virtualisation technologies, bring the web, as key IT platform, into the twenty-first century. Cloud computing has developed from the Application Service Provider model with Salesforce.com offering its customer relationship management software from the cloud since 1998. Nowadays, a number of major IT suppliers such as Google, Microsoft and Amazon offer cloud computing services on a one-to-many basis. Other vendors are following suit and most IT service providers now have suites of cloud-based services of varying levels of maturity on the market.

Put it simply, cloud computing is the delivery of IT as services over the internet. Cloud customers don't need to purchase hardware or install software and companies don't have to run their own application and data servers. Instead, applications are hosted in the data centres of the cloud computing provider, benefiting from great economies of scale, accessibillity and dramatically lowering the costs of IT service provision.

The increased take up of cloud technology is partially due to the increased reliability of the internet coupled with the development of more sophisticated encryption technologies and the attractive cost savings. All the above mean that (i) companies are able to look more seriously at cloud-based offerings and (ii) more companies are able to do so. Of course, strategy planning, risk assessment, governance and suitability for the organisation and the particular job must be considered before adopting cloud computing.

Cloud-computing arrangements are usually paid for on a service basis, which means that the upfront costs and upgrade fees associated with more traditional software licensing should be avoided. I understand that running a virtual machine on Amazon's Elastic Computing Cloud (EC2) starts at just twelve cents an hour with a basic service offered for free for a year to encourage take-up.

However some cloud computing providers may seek to levy start-up fees or upfront subscription charges to mitigate their own commercial exposure, for example, for any third-party software licensing charges.The nature of cloud computing means that a number of well-established IT contract concepts need to be reconsidered and will continue to need consideration as technology is refined. So, while discussing points such as about premises and location of servers may not be necessary, customers and suppliers alike should address the regulation of business through data protection, the Sarbanes-Oxley Act 2002 (SOX) and Directive 2004/39/EC on markets in financial instruments (MiFID).

Types of cloud computing

There are various definitions for the cloud and for cloud computing. That said, it is generally accepted that cloud computing consists of: Software as a Service (SaaS), Platform as a Service (PaaS) and Infrastructure as a Service (IaaS), all of which involve delivering IT components that had previously been regarded as products or tangibles (transactions) in a different way (relationships). For more information on these different aspects, I refer you to my previous article on cloud computing.

Common characteristics of cloud computing

• Turn on the tap type of services. The customer can access computing capabilities automatically as needed, without intervention by the vendor.
• Greater resources. Computing capabilities are available over the network and accessed through standard mechanisms anytime, anywhere.
• Economies of scale. The cloud computing resources are pooled to serve multiple customers resulting in cost reduction through taking advantage of economies of scale.
• Scalability. Computing capabilities can be quickly scaled out or scaled in depending on the customer's needs. This allows the customer to respond to business demands without risking being over or under sourced.
• Measured service. The customer's resource usage can be monitored and controlled. In other words, the customer pays for what it uses.

·         Exit and transition

·         Transfer of Undertakings (Protection of Employment) Regulations 2006

The proposed rationalisation and increased automation of services is likely to raise the prospect of significant redundancy costs for the customer or incumbent cloud computing provider in circumstances where the new cloud computing challenges the application of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).There will be, of course, some situations where the allocation of cost and risk may have been allocated between parties under pre-existing agreements. In other circumstances this may not be the case. If a customer is faced with a large redundancy bill because TUPE is deemed not to apply, this may be a significant factor in determining the financial benefits associated with cloud computing.

Some organisations are using cloud computing as one element of multi-sourcing arrangements, enabling them to be flexible in choosing IT services that best meet their needs rather than single monolithic outsourcing arrangements.Cloud computing requires a greater level of understanding by the customer of the real impact and effect between technical, business, commercial and legal factors. 

The provisions required in a cloud computing services agreement will depend on whether the platform infrastructure that is adopted will be:

·         Private cloud and service only one customer organisation.

·         Public cloud and be shared by a number of organisations.

Multi contracts arrangements, single faults can impact multiple contracts, creating a snowball effect of liabilities. In these cases, suppliers are particularly reluctant to offer indemnities, relax limits of liability and agree to one-to-one governance and dispute-resolution processes.Below is an overview of potential issues including legal: