Tips to get colocation contract renewal right

Infrastructure management is certainly not something you can set and forget. The same goes for your colocation contracts. When your team nears the end of a service contract, it is a great opportunity to renegotiate terms for better rates or added services; otherwise, it might be time to find a more suitable service provider.

During his presentation "Renewing Colocation Contracts: Getting More and Spending Less" at Data Center World 2020, Kirk Killian, president at Partners National Mission Critical Facilities, a Dallas firm that helps clients select and procure data center and colocation sites, detailed how organizations can find new ways to negotiate a better colocation contract that can benefit IT teams in the long term.

He noted that when organizations renew colocation contracts, IT teams should strive to extend the contract, rightsize colocation space, correct any contract deficiencies, investigate possible value-add services and maintain a positive relationship with the provider.

Within the organization, you should communicate the updated colocation strategy to senior management for preapproval, involve legal for any contract review and figure out what potential approval barriers exist.

"Better deals are started early, if you're ready to be patient. But be prepared to negotiate and sign the new contracts quickly," Killian said.

The provider evaluation process

Colocation contract renegotiation has two main steps: scoping and the request for proposal (RFP) process.

The scoping phase allows your team to figure out any reliability requirements, how much space your team needs, power, location, managed service requirements, connectivity and any compliance standards.

Even if you intend to stay with the same colocation provider, it's still important to redefine what your infrastructure needs are -- and figure out if your provider can meet those goals.

"There's some companies out there that have been at it for 10 years or more and others are new. When we interviewed all [these colocation providers], we weren't getting a holistic approach, because there's so many variations to what these colocation sites can offer, you can have various specializations. You really have to see if they're just saying yes to what you want to [get the contract]," said Dennis Keats, data center lead analyst for an insurance company based in Alberta.

As a rule, if you don't ask for something, it's possible you won't get it.

After your team decides on the scope of colocation, take the time to issue an RFP. Many find that simply issuing an RFP to their existing provider -- even if it's a short-form one for renewals -- makes the provider much more willing to agree to better terms for the renewal contract, Killian said.

In some cases, once colocation providers find out that you're in the market, it can make providers more open to improve the colocation contract terms, especially if you have specific infrastructure requirements.

"We found in the RFP [process], [we] can make it as vague or as specific as we want. We wanted to do more critiquing and figure out what they could do for us throughout the contract, and we wanted to hear about their process and how they go about their security and server installation," Keats said.

When your team gets the proposals, be sure to analyze the difference in cost and features, and also get an idea of what a base commitment, projected commitment and growth case look like. Additionally, you should model upfront costs against recurring costs for an accurate picture of the colocation contract.

Cost reduction tactics for colocation

Throughout the negotiation process, there are several ways that your team can reach a more cost-effective, flexible colocation contract.

"As a rule, if you don't ask for something, it's possible you won't get it," Killian said.

The most straightforward way to reduce cost is to reevaluate your power and space quantity. Rightsizing and re-racking infrastructure is the single most effective cost-reducing tactic, Killian said. This is because most of the time, organizations can overprovision infrastructure that ends up unused.

Not only does this bring your team cost savings, but it also means the colocation provider can lease out the regained space to another customer.

To increase contract flexibility, your team should look into options for spend shift and specific one-time hardware costs. Doing so ensures that you don't restrict your colocation setup options, or you end up paying extra fees as your hardware needs change. One way to do this is to commit to a smaller colocation space but ensure expansion rights as part of the new contract.

"We also wanted to know [what colocation providers] could do for us long term and [our] growth and expansion capabilities and if our cage could expand long term. We positioned ourselves in an area where they added some space for us at us for no charge," Keats said.

Ask about available rates if you extend your term beyond the current renewal goal. If you show interest in options for three-, five- and seven-year renewal terms, you could negotiate a lower rate, and it might also bring reduced rates over the remainder of the current contract.

For hardware-based costs, Killian advised to look at fees for active cross-connects and telecom circuits.

"Once cross-connects have been installed by the colocation provider, probably five to 10 years ago, and they've been paid for by your fees during your original contract terms -- those fees that you'll pay during the renewal term are pure profit for the colocation provider," Killian said.

To reduce fees, inquire about the possibility of leaving cross-connects physically in place so that, should you need them again, you don't have to pay installation fees.

On the telecom circuit side, Killian said it's a buyer's market for telecom circuits. If it's likely your colocation provider has brought in third-party network providers to the facility, you can get much more aggressive pricing than the available legacy carriers from your initial contract.

To ensure a successful colocation contract renewal, be sure to have your team on the same page when it comes to desired outcomes and be sure to be upfront about which line items you must discuss with your provider. Most providers seek long-term customer satisfaction, so the more ways you can find to build an amicable relationship, the easier it will be to get a contract that works for your organization.