Customized Interfaces or Services
When your client outsources its IT functions, a one-size-fits-all approach usually won't work. The client will often be paying its cloud service provider (or a third-party consultant) significant professional fees (fees that exceed $100,000 are not unusual) to customize the screens and other interfaces that its employees see.
Most enterprise software will not work for your client right out of the box — it needs to be configured to align with your client's operations. This work is usually categorized in cloud contracts under the broad heading of "implementation services." If your client also needs its customers to have access to the data in the cloud, the implementation services will usually involve the design of websites and other online portals that include the company's service marks, distinctive colors and trade dress.
With your client spending all of this money, it is crucial that you secure for your client in the deal documents sufficient rights in the customized work so that it can use the work product again in the future — either with another IT service provider or even by its own employees if your client is retaining some in-house IT capability.
You will need to pay particular attention to the provisions in the documents describing which party owns or retains rights in the "work product" or "deliverables." Obviously, the service provider will want to retain some rights in customized work so that useful solutions originally designed for your client can be used with its other customers.
How extensively your client will want to negotiate these provisions depends on how much of a competitive advantage your client believes that its business processes confer. If your client thinks its particular business practices as reflected in the custom IT work that the consultant is performing are distinctive in its industry and constitute a valuable trade secret, you'll want provisions that give your client broad ownership rights and exclusive rights to use the work product.
If the custom work isn't so crucial to your client's success, an agreement with the service provider that permits concurrent rights to use and modify certain parts of the deliverables will usually be acceptable.
Work for Hire
On a more basic level, you will also need to confirm that the service provider itself has the power to grant ownership and use rights to your client. If the service provider uses subcontractors to perform work for your client rather than employees (a very common approach in the IT industry), you need to provide in the deal documents that the service provider is required to bind all of the contractors to "work for hire" and other agreements that transfer all rights in their work to the service provider. Only then will the service provider have rights to transfer ownership and use rights to your client in the work product and deliverables.
Licensing Issues
When your client outsources its IT functions, one of the tradeoffs in the new arrangement is a certain loss of operational flexibility. The cloud service provider will typically be managing IT for numerous clients and will have developed institutional procedures and practices that are more routinized than your client may be used to when its own employees were running its in-house IT department.
This downside to cloud-based IT often manifests itself in the software licenses for the applications your client uses.
You'll need to assist your client in figuring out which provisions in the licenses could have operational significance and then attempt to negotiate them accordingly. For example, can the cloud provider host all of the software applications that your client uses or will certain programs and databases need to remain local (i.e., on site)? If the provider won't or can't host certain programs, does it offer suitable alternatives that your client can use? Can your client add new applications or modules to the cloud whenever it wants or will the provider act as a gatekeeper to decide which programs it will or won't host?
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