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How to get out of a bad colocation contract

Renegotiation, legal action and cancellation are all options if your colocation service agreement isn't up to par. But each option requires research to avoid big fees or downtime.

Bringing in a third party to help you manage your data center involves some risk. Colocation enables you to expand your processing capabilities and offload facility maintenance, but what happens when things don't look quite so rosy after you sign the service-level agreement?

Potential problems in a bad colocation contract can include fast-rising costs, additional service fees and performance issues. If reaching out to the colocation facility owner proves unhelpful, you must build your case to close contract service gaps.

Building a case

Go back to the contract, and confirm the details. Make sure that the contract does not place all responsibility on you and absolve the facility owner. If the contract does essentially say, "Buyers beware," you might be stuck, but still look into unfair contract clauses as an option.

Ensure that you fully understand what the facility owner's responsibilities are and what your responsibilities are. Document these in your own words, cross-referencing the relevant clauses in the contract. Detail where you believe the facility owner is failing to meet the contractual agreement. Outline what you have done to try and reach an agreement, and close any service gaps. Include times, dates and persons involved for every incident, email, telephone call and meeting.

Deliver the resulting documentation to the facility owner or appropriate executive and require proof of delivery. If an email read receipt is ineffective, send it via the postal service, and require a signature -- address it to the CEO if necessary.

If this approach is met with silence, follow up within two weeks, and and state a deadline for agreement renegotiation.

At this stage, you still haven't involved legal help, even though you have made a couple of legal-sounding statements. Hopefully, this approach helps move things along and minimizes costs.

Getting legal support for a bad colocation contract

If detailed follow-ups aren't effective, the next move is to involve legal representation. If you have an in-house legal team, you may well have already run your documentation past them to make sure that it is all legally correct. After you've checked any documentation with them, consult with them on potential next steps.

For smaller companies with no in-house legal representation, it is time to look outside and bring in someone who can now ramp things up by sending legal documents with more aggressive jargon and prompt action.

If the facility owner is big enough, it may decide it can afford to face your legal team with its larger, more expensive team. Try to carry out due diligence before bringing in lawyers. This can be done through client referrals and individual research; confirm that whatever firm you hire has experience with technology service contract litigation.

You can also try and find other companies that have dealt with a bad colocation contract; ask them what they did, what worked and what didn't. Ask the companies if you can name them in documents or point to them as anonymous examples to back up your concerns to the current colocation provider.

The final option is the nuclear one -- cut ties, and find a new provider -- but might be easier and cheaper in the long run. There's no need to stay in a bad colocation contract. These failures may be indications of worse underlying issues. The facility owner may be cash-strapped or about to go under.

If you haven't started already, look to other facility owners in the area, and make sure that you do a lot more due diligence. Ask for customer references, and follow them up. Then, try to find your own references that aren't from the facility owner. Go through every clause in the new contract with a fine-toothed comb, and be sure to discuss potential concerns and liabilities during the negation process.

Unless your organization is cash-rich, moving your equipment from one facility to another will involve a period of downtime. While unfortunate, this pays for itself in the long term due to a better relationship with the new facility owner.

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How would you rework a poor colocation contract?
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