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Why do you need a Hosting Services Agreement?

The hosting services business is typically a relatively low margin business and the business model is based around having either a high volume of transactions or providing value-added services. Accordingly, it is critical to clearly define the services that are being provided to ensure that all services are properly priced and paid for, and to ensure that there is no risk of the customer terminating the agreement before the end of the term prior to the ICT supplier having received the full financial benefits of the agreed term.

One of the customer’s key expectations is that the ICT supplier will provide a secure physical environment for the equipment and that where the ICT supplier provides the equipment, that equipment will be provided with a very high level of availability together with appropriate back-ups and disaster recovery procedures. It is a significant decision for a customer to outsource its ability to run its own hardware infrastructure and ICT suppliers need to provide their customers with a significant degree of comfort that the services will be run professionally and with high levels of availability. Accordingly, the degree to which the ICT supplier is able to “guarantee” the security of the equipment, the customer’s data and the availability of the service through the agreement is important. Any guarantees in the agreement can be used as support for the sales strategy with the customers. Given the significant number of hosting services that are available in the market at relatively low cost it becomes imperative for the ICT supplier to be able to guarantee high levels of availability and service through their agreements. Where ICT suppliers are unable or unwilling to provide the level of guarantee that customers require in the hosting services agreements then the customers are likely to go to an alternative supplier.

The hosting services agreement is the agreement which describes the customer’s rights to receive the service and the obligations of the ICT supplier to provide the service, including any guarantees as to availability. The hosting services agreement allocates the risks associated with the provision of the services between the ICT supplier and the customer and provides a number of protections for both the ICT supplier and the customer.

Without a hosting services agreement the ICT supplier will:

have difficulty enforcing the minimum period of service, and therefore the minimum payment arrangements;
not be able to manage the client’s expectations as to what “high availability” means, particularly in terms of which items of technology are included in the high availability warranty and what are the justifiable reasons for the ICT supplier not meeting the high availability warranty;
not have clearly allocated responsibility for losses that arise from events such as fire, flood or damage that are caused by the ICT supplier, the customer or the customer’s visitors to the hosting premises;
be exposed to potential claims from third parties that may arise from the customer’s content, which is included in the software application that is installed on the equipment;
have unlimited liability for breach of contract.

Next: Learn about Legal Protection for ISPs

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Master Hosting Services Agreement

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