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How to negotiate a fair data center colocation agreement

It's critical to business operations and your overall budget to know what a good colocation SLA covers, what it doesn't and how to negotiate one for your organization.

The costs of leasing space in a colocation facility can vary greatly, depending on several different factors. Although some colocation providers are firm on their pricing, in most cases, the price you end up paying will be based in part on your negotiating skills.

Know your organization's goals and needs

The first step in negotiating a favorable rate for a colocation space is to make sure you know your organization's goals and needs. After all, it's nearly impossible to negotiate a great deal if you don't even fully understand what it is you need. Therefore, it's critical to fully assess your organization's goals and requirements before you begin contacting colocation providers.

Some of the questions you should think about asking include the following:

  • How much space do I need?
  • Are my space requirements likely to change over time?
  • What contract term -- lease duration -- am I comfortable committing to?
  • What is my total budget for data center colocation?
  • Is the IT budget likely to be cut next year, and, if so, what effect will that have on the colocation rental?
  • Ideally, what rate would I like to pay for the colocation facility?
  • Are there any special services that the colocation provider will need to provide?
  • Will my organization need physical access to the colocation facility or is remote hands sufficient?
  • If my organization is unable to get everything that it wants out of a service provider contract, then what are my three highest priorities?
  • What service-level agreements am I obligated to maintain, and how will the colocation facility selection process affect my ability to meet the required SLAs?
  • What are my security requirements for a colocation facility?
  • Will using a colocation facility do anything to make regulatory compliance more difficult?
  • Does the service provider offer any sort of compliance-related reporting?

This is by no means an all-inclusive list, but these are some important questions to consider as you begin to assess the possibility of leasing space in a colocation facility.

Find out what's negotiable and what's not

When it comes to pricing, colocation facilities really aren't all that different from car dealerships. Many dealerships allow you to negotiate on the price of a car, but there are some that use fixed rate, non-negotiable pricing. When you're evaluating a colocation provider, it's important to ask upfront whether pricing is negotiable.

Even if a colocation provider is firm in its pricing and doesn't negotiate on the cost of the lease, there might be other items that you can negotiate. It's like purchasing a base model car from a dealership that doesn't negotiate on price but getting the dealer to throw in window tinting as a concession.

When it comes to negotiating a colocation data center lease with a provider that doesn't negotiate on the lease amounts, there are plenty of other areas where negotiations might be possible. Keep in mind, however, that your ability to negotiate the primary service agreement is going to depend greatly on how much money you're spending and the duration of the lease. Obviously, you're in a better negotiating position if you're spending a lot of money, but even organizations that are making a relatively modest investment might still be able to negotiate.

It's always possible that a colocation provider will throw in a concession just because you asked for it. This is especially true right now, given the state of the economy, as colocation providers might be anxious to fill unused space in their data centers. If you're unable to get what you want just by asking, then you might consider asking for a concession in exchange for prepaying a portion of the lease.

Some of the items you might be able to negotiate include:

  • Power billed at a reduced rate, if the cost of power isn't already included
  • Free or reduced cost support
  • Reduced bandwidth cost
  • A free or reduced cost cross connection

Understand total cost of occupancy costs

Although there are some colocation data center providers that offer all-inclusive pricing, such providers are rare. In most cases, the colocation lease costs only account for a fraction of the total cost of occupancy. There might be significant additional costs both upfront and on an ongoing basis.

Identify NRCs

When an organization leases space with a colocation facility, there can be any number of nonrecurring costs (NRCs). Sometimes these costs are associated with the initial signing of the lease. For example, a colocation provider might charge potential tenants an application fee. Likewise, there are colocation providers that require their customers to purchase a power distribution unit prior to installing any data center hardware.

You might find that, even if two different providers offer five nines of availability, one of the provider's SLAs might be very different from the other in terms of the scope of coverage.

It's important to note that NRCs can also occur at a later point in time. For example, many colocation facilities offer various types of pay-per-incident support. A support incident could be considered an NRC, as such incidents don't happen with any sort of regularity.

Another example of an NRC might be the cost related to moving your data center hardware into the colocation facility. If your organization is handling the move by itself, then this might mean that there will be costs associated with renting a truck and paying the IT department over time to move hardware into the new data center space.

If, on the other hand, the colocation facility is going to be used to house hardware associated with a brand-new workload, then there might be hardware acquisition costs to consider. Odds are that the hardware would be shipped directly to the colocation facility, but even then, it will need to be installed, which will inevitably require a significant number of staffing hours.

It's worth noting that some colocation facilities don't allow customers to have physical access to the data center. In these types of environments, hardware installations are handled through a remote hands program and are, generally, billed at an hourly rate.

Evaluate all MRCs

Just as there are one-off, nonrecurring charges associated with the use of a colocation space, there are also recurring charges that occur on a monthly basis. The most obvious of these charges is the data center lease itself, but there can be several other monthly recurring charges (MRCs) and, taken together, these charges can significantly increase the total cost of occupancy.

One such charge is power. Most colocation facilities bill their customers based on the power they use. Some facilities simply meter data center equipment power consumption and then send the customer a bill at the end of the month. Other facilities, however, differentiate between the ways in which power is being used. For example, a colocation facility might look at the total amount of power being consumed for things such as lights and cooling, and then divide the cost among its customers based on the amount of space that each customer is leasing. In other words, each customer's costs are proportional to their footprint in the data center. In such cases, the power consumed by data center hardware is billed separately on a customer-by-customer basis.

Another MRC that you're likely to encounter is bandwidth consumption. In most cases, colocation facilities don't include internet bandwidth in the cost of the lease. The same can also be said for cross connections, which generally also incur an MRC -- in addition to a potential one-time setup charge.

Some colocation facilities also charge their customers for a mandatory support contract. The support contracts tend to be billed on either a monthly or an annual basis and are designed to offset the cost of using data center staff to address customer's technical issues.

Once again, every colocation provider has its own way of doing things. It's worth noting. however, that mandatory service contracts don't necessarily guarantee unlimited technical support. In some cases, a data center might charge an annual support fee that covers the cost of remote hands support, but then bill smart hands support on a pay-per-incident basis. In these types of situations, remote hands support would cover only the most basic support issues such as cycling a server's power or checking the status of an indicator light on a piece of hardware. More advanced support requests -- usually anything requiring IT expertise -- would be smart hands support.

Closely examine the SLA

When negotiating a data center colocation agreement, it's extremely important to look at the service-level agreement the colocation provider is offering. Colocation providers generally define their SLA in one of two ways.

The first way in which a colocation provider might define an SLA is by classifying the data center according to tier. There are four different data center tiers, each with its own level of resiliency:

  • Tier 1. No redundancy offered by the data center.
  • Tier 2. At least some minimal level of redundancy for power and cooling.
  • Tier 3. Redundancy that is enough to keep the data center operational for 72 hours in the event of a power outage.
  • Tier 4. Full redundancy with the ability to remain online for 96 hours or more following a power outage.

The other way SLAs are often expressed is through a series of nines. For example, many data centers advertise five nines of availability, which means that data center services are available 99.999% of the time. Some providers offer even more stringent SLAs of six -- 99.9999% -- or even seven nines -- 99.99999% -- of availability.

Regardless of which method a colocation provider uses to convey its SLA, it's extremely important to look at what the SLA covers. Some colocation providers offer SLAs that cover all its data center services. This means the provider guarantees a certain level of availability for things such as power, cooling, internet connectivity and, possibly even, technical support. Other colocation providers offer SLAs that only apply to the availability of power. These providers might not make any guarantees as to the availability of other data center services.

If you're evaluating multiple colocation facilities to determine which one is the best fit for your needs, then it's important to perform a side-by-side comparison of each provider's SLA. You might find that, even if two different providers offer five nines of availability, one of the provider's SLAs might be very different from the other in terms of the scope of coverage.

Whether you're looking at leasing a colocation facility for disaster recovery purposes or because you are outgrowing your own data center, it's important to get the most favorable lease terms that you can. One of the best ways to accomplish this is to understand that the lease cost normally only accounts for a fraction of what you'll end up paying. Your total out-of-pocket monthly expenses can easily double the cost of the lease.

Be sure to read the primary service agreement carefully so you can figure out what you'll be billed for. Once you know what the costs are, you can get a sense of where to focus your negotiation efforts. Remember, the lease cost doesn't matter nearly as much as your total monthly expenditures. Therefore, it might not be nearly as important to negotiate on the lease itself as it might be to negotiate more favorable terms for the ancillary costs.

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