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Seven key issues to analyse before creating your escrow agreement

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While an escrow agreement is there to protect you, there are certain steps you need to take yourself to make sure it’s the right one for your company. After all, every business that uses SaaS, or online data services, does so for different reasons. What’s right for one organisation may not be right for another. Here are a few areas you should examine before drafting your agreement.

Evaluate your vendor’s capabilities – Before moving any aspect of your operations to the cloud, you should take steps to verify your vendor’s credentials and, of course, to confirm that they have the capacity to provide you with a reliable service. Look at any past history of failures and consider the possible impacts for your business should the service fail, as well as the contingency plans you can put in place to prevent such an eventuality. Once you’ve reviewed this, you will have a better picture of the details that need to be included in your escrow agreement.

Take account of future business strategy – Is your business planning to expand in the foreseeable future? If so, this needs to be factored into your escrow agreement. Talk to key decision-makers within the organisation to ensure that you are fully aware of any possible policy changes of business restructuring down the line. Also, make sure you understand the implications, if your plans do change unexpectedly, and how your vendor is positioned to accommodate your future needs.

Security – Security is about more than simply knowing that your data will be safe from prying eyes. For example, how will the data or services be accessed? What levels of security access are needed and how will they be enforced at the hosting company? These are all things to look at when considering issues of security and confidentiality.

Legalities – Every country has different laws and these can vary from region to region. Be aware of how the legal regulations in the country where your vendor is located or your data/services are being hosted will affect you. Be particularly careful when it comes to any regulations specific to your own locality.

Disaster recovery/business continuity – Assess the vendor’s own contingency plans in the event that something should go wrong. You should do this before developing your own disaster recovery plans, as these could have significant impact on how you plan for your own. Once you’ve done this, you’ll also become aware of any additional protective clauses needed in your escrow agreement.

One size does not always fit all – While cloud computing services are often much cheaper than installed assets, vendors often sell these services off-the-peg, so to speak, as opposed to tailored to the needs of an individual organisation. It’s vital that you determine how much the vendor will adapt their service to meet your needs or how much you will need to alter your own infrastructure and processes to be compatible with the vendor’s way of doing things.

Financial stability – While this ties in with our first point in our article, it is perhaps the most important of all – especially given the competitive nature of the cloud computing market. It’s vital that you check and crosscheck the financial position of your vendor. If possible, look at financial statements and customer references. Social networking platforms and company blogs may also hold clues to the state of the vendor’s finances.

The best way to ascertain the answers to all of these issues is to meet with the vendor. Discuss your concerns regarding account service availability, error correction, user support, service level measurement and technology upgrades/updates. During the course of the meeting, you may discover other issues will come to light that may affect your escrow agreement. 

Any SaaS or data hosting service can mean a major financial outlay, so make sure you invest time into formulating the best escrow agreement to protect your investment.

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