Every year brings news of yet more growth in the amount of data generated by companies that must be managed, stored and accessed on-demand. this growth has led to large unwieldy server portfolios, legacy equipment struggling to meet storage demands and inflexible infrastructure becoming features of many in-house IT environments. In this context, companies are reaching out to third-party data centre suppliers to ease their problems.
In the Asia pacific region specifically, the data centre industry appears to be on the cusp of a significant growth phase, with multinational providers such as IBM announcing plans to develop more data centre space to meet ever-increasing capacity trends.
Given these regional developments, we felt it timely to touch on some of the key legal and commercial issues and themes that customers should consider when looking to procure data centre services.
WHICH TYPE OF SERVICES?
A key focus for all parties should be to ensure the contract accurately reflects the parties' relationship and the type of services that are being provided. some of the more common are outlined in the table below:
DATA CENTRE CATEGORIES
| Co-location | Simple provision of a standard defined "space" within a data centre, which the customer utilises by installing its own equipment and receives the benefit of shared services such as power and air- conditioning. This is often used by small-to-medium enterprises that require limited rack space. |
| Co-location Design and Build | Bespoke design of a specific area in a data centre according to agreed plans/specifications to allow the customer to install its own equipment. The space is often provided on a traditional lease basis and provides the customer with exclusive access and control of the space for the term of the contract, save for certain exceptions (eg to allow third-party access in the event of disaster). |
| Design, Build and Operate | All activities as per design and build, but in this instance the vendor will take on a more active role in the ongoing management of the customer-owned servers and play a role in various data management/monitoring activities. |
| Fully Managed Services | A fully managed scenario sees all ownership of premises, infrastructure and equipment reside with the supplier, with customer data being migrated to supplier-owned servers. This scenario describes the "cloud services" approach and customer data may reside on the same physical server as other parties through the use of "virtualisation" software. |
For each category, it is prudent to spend the time ensuring that the services description, standards and obligations in the contract meet expectations, particularly in situations where the data centre is going to be a critical to the day-to-day running of a costumer's business.
WHOSE CONTRACTUAL TERMS?
Data centre deals can range from highly complex multi-discipline projects (eg design, build and operate) to fairly standard short-term arrangements (eg. on-demand co-location). Where a particular deal falls on this spectrum will impact considerably on the starting point for the contractual documentation.
An approach that can bring advantages to both parties is the contractualising of customer objectives (eg reduction in power consumption increase efficiency of data management etc). This can have a positive benefit on the parties' long-term relationship by making expectations clear from the outset.
SERVICE REQUIREMENTS
There are many aspects to data centre services that should be considered, including:
- The availability of the hosted environment, including response and fix times for incident and problem management, to ensure the level of service availability is clear
- The climate control for the space, including temperature and humidity, to ensure the equipment being housed in the data centre can tolerate such conditions
- The power supply, to ensure the space has uninterrupted access to power (including ensuring back-ups in situations of power outage)
- Connectivity, to ensure the network design doesn't have any points of failure and that there is sufficient bandwidth connecting the data centre to the network and the customer
- The supplier's technology refresh commitments
- The adequacy of security measures and incident-management procedures, should security incidents arise.
A particular aspect customers need to be aware of is ensuring there is flexibility (and sufficient capacity) to access extra space should it be required and, if demand for space does drop, that it is possible to reduce the space commitment. on the other hand, suppliers will be seeking a return from their upfront investment in providing space in a data centre (or even in building a new data centre) and will seek to ensure that there is more certainty. This tension will need to be worked through to ensure both the customer and supplier are content with the commercial arrangement.
SERVICE LEVELS
Customer teams should ensure that there are appropriate service levels in place that reflect the requirements for the services. The famous mantra attributed to management guru peter Drucker of "what gets measured gets done" should be at the forefront of customers' minds when assessing service levels for data centre services. In tandem, the commercial/legal teams need to ensure the right contractual levers can be pulled if a service level is not met.
Suppliers will naturally want to limit the remedies available to a customer upon service-level failure (often exclusively to the payment/deduction of service credits against future fees). In addition, customers will need to consider what level of reduced service it would consider so harmful to its business that it would want the ability to exit the relationship.
TESTING
Testing is a critical phase in any data centre arrangement and can extend to all elements of the data centre ecosystem (eg back-up power supply, remote monitoring and air conditioning). Customers should consider what level of oversight they require in the testing phase, which will depend on the type of services being procured.
Customers with business-critical start dates may wish to consider delay provisions, which automatically reduce charges or trigger liquidated damages in the event that the supplier misses key testing dates.
REGULATION
Data centre services will be subject to a raft of laws and regulations, depending on the jurisdiction in which the data centre is located, the customer's business and the particular services which are being provided.
Potential issues to be considered can include:
- Environmental regulations around power consumption
- Real estate issues in any new-build/fit out work
- Data protection issues in the event that personal data is being stored/processed by the customer in the data centre.
While the Asia pacific region does not have a harmonised approach to data protection (as in the EU), developments across the region are afoot, with Asian countries especially introducing legislation to meet the challenges posed by vast amounts of personal data residing on huge corporate databases in offsite premises. For example, Malaysia has enacted a new data protection regime expected to take force early this year, china introduced new draconian data protection laws in January 20 i i and singapore is expected to enact a new data protection regime soon.
Contractors and suppliers will need to work together to understand the prevailing laws of the jurisdiction in which the data centre is located, including the costs of compliance with any new legislation and obligations around sending data to third parties.
Finally, where a multi-national business is seeking data centre services in the Asia Pacific Region, extra-territorial legislation - which impacts customers in their home jurisdictions - will increasingly feature in data centre contracts regardless of the relevant jurisdiction and governing law (eg the Us Foreign Corrupt Practice Act and the new UK Anti-Bribery Law).
BUSINESS CONTINUITY
One of the main considerations for customers is ensuring that the risk of service outages is minimised. customers should work with suppliers to determine the main risks to availability and ensure that the contract deals with those risks through carefully drafted business continuity and force majeure provisions.
In particular, supplier business continuity plans should be reviewed by expert in-house technical teams or external consultants to ensure that a customer has sufficient comfort around what the supplier's capabilities are in potentially harmful events such as a natural disaster or a power outage.
VIRTUALISATION
A feature of many data centres today is the widespread use of "virtualisation". This refers to the use of a single physical server to house the data and applications of multiple customers, each being kept virtually separate on the server through the use of special software (ie hypervisors). This is a highly efficient way of maximising computing capacity, which may otherwise lay dormant save for certain infrequent peaks.
A number of legal issues can arise where a supplier offers virtualisation or the customer utilises hypervisor software itself:
- Do existing software licenses allow a transition to a virtualised platform (as many older software licences will not cater expressly for such scenarios)?
- What additional security risks are there to the data in being in a virtualised environment together with other customer data?
Customers should carry out careful due diligence on any virtualisation offering and also assess their own ability to procure such services where they wish to redeploy existing software applications in a virtualised environment.
In the US, a single physical server was seized from a data centre by the FBI under an investigation in accordance with the US Patriot Act. This inadvertently affected numerous businesses that had data residing on the same physical server due to virtualisation technology. Customers need to decide whether such a risk, though extreme, would be acceptable.
SEALING THE DEAL: ENSURING DATA CENTRE SUCCESS
The areas identified above are just an example of the some of the key themes and issues present in data centre services agreements. Customers need to carefully consider each deal on its facts and apply rigour and common sense.
DLA piper's Asia pacific Intellectual property & Technology team can provide expert advice on such deals, drawing on international experience coupled with a deep understanding of the technology and legal issues at the heart of such transactions.
© DLA Piper
This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.
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