Data center service provider contracts can be one of the most confusing, daunting pieces of the IT landscape. They generally come up for renewal every three to five years, and in many cases, companies just sign off without much renegotiating. It’s not their fault—licensing is a headache, only made more difficult by the lack of information, detail, and the hard bargains that many service providers drive because of ambiguity in their contract and pricing structures.
One apparel company found this out the hard way. The company relied heavily on an existing colocation deployment for business-critical services. Its contract was coming up for renewal, and moving to a new service provider would be too expensive, time consuming, and disruptive to the business. Public cloud wasn’t an option. The company had tried it once before and found it even more expensive than the deployment it currently had colocated. The customer felt like it had no option but to renew again under the existing terms.
Like many organizations, this apparel company didn’t know there are ways to save money, and even improve the flexibility of contract terms when renewing with an existing provider. Stuck between a rock and an expensive contract (compared to SHI achievable rates), the company mentioned its problem to SHI.
A convoluted contract, and nowhere to go
Like many businesses, the company in question had fallen into the habit of simply renewing its colocation services every three years—partially from comfort, and partially from lack of knowledge about how to lower its rates. Costs were rising, but renewing was easier than spending the time vetting other providers, not to mention migrating an entire system—a long and potentially business-disrupting process.
But the short-term convenience of auto-renewing can have long-term consequences. This type of vendor lock-in frequently costs organizations millions of dollars in otherwise avoidable spend over the course of an initial term contract.
That’s why the customer needed the expertise and leverage of a third party like SHI to renegotiate the contract. Applying the knowledge accrued from thousands of contract negotiations, SHI can easily identify why and where companies are paying more than they should be. This can save a company money, improve its contract terms and data center strategy, and allow the company to stick with the provider it’s already with.
For this apparel company, however, SHI only had a month to do so before the renewal.
A skill set for a unique service
We started by having our experts scour the customer’s contracts and apply their knowledge of the most competitive market rates for the services provided—something difficult to know, even with extensive research on colocation centers, unless you conduct frequent transactions within the industry and work day in and day out with all of the service providers.
We put together a current and future state analysis, which pointed out exactly where SHI could lower costs, and also proposed modifications to the contract that the customer didn’t know it could negotiate into the agreement. Some of these revisions added flexibility to the contract that will serve the company well as it considers how to use its data center services in the future.
Next we brought our bargaining leverage to the table. Because SHI represents a large number of companies with active deployment engagements, we have greater negotiating power than any individual customer attempting to strike a deal on their own. As a result, we negotiated better pricing for the apparel company without giving up any services it used.
Colocation contract assessment delivers results
In the end, the company came away with a renewal that saved them 42 percent off their existing rates and gave them more contract flexibility than they realized could be negotiated. It was a huge turnaround for the organization’s colocation services, and allows more freedom for the future.
Organizations often don’t realize how complex contract negotiations can be, and simply sign off on whatever comes their way because they get stuck, don’t have the time, or think they’re already getting the best deal they can. Without specialized inside knowledge of the system, services, and contract language, it’s easy to overspend.
This customer was no exception, and odds are, your company isn’t either. Contracts are complex, and easy to get trapped in. However, there are services available to make sure you’re getting a great price for the data center services you need.