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  1. #1
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    How Long is your Contract for Colocation

    Just wondering how old is your contract for colocation? Mine is 1 year but I am thinking of extending it. Reason being every time there is a contract renewal it is a great hassle to bargain, can take up to weeks before we arrive at a price. Tired of such bargaining. But worried on too long a commitment period.

  2. #2
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    Quote Originally Posted by boonchuan View Post
    Just wondering how old is your contract for colocation? Mine is 1 year but I am thinking of extending it. Reason being every time there is a contract renewal it is a great hassle to bargain, can take up to weeks before we arrive at a price. Tired of such bargaining. But worried on too long a commitment period.
    Well, we operate on a slightly different arrangement given that we lease property to operate a facility rather than space within a facility. Generally we sign extended term leases, in the case of our latest property it's a 10 year term. You'll find you should be able to achieve better pricing on a longer term agreement.

  3. #3
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    Quote Originally Posted by boonchuan View Post
    Just wondering how old is your contract for colocation? Mine is 1 year but I am thinking of extending it. Reason being every time there is a contract renewal it is a great hassle to bargain, can take up to weeks before we arrive at a price. Tired of such bargaining. But worried on too long a commitment period.
    I signed up for a 3 year term in one of my colo sites to save on the setup charges and frankly I regret it. There's nothing wrong with the site or the provider - and it was a good thing in the sense that they raised rates 28% immediately after I signed the contract - but I'd rather consolidate down to one location. Two years would have been all right but three is too much of a stretch.

  4. #4
    Long contracts could be a good choice for a lot of customers/hosting companies, although my approach is different - the same with our vendors - us and our vendors.
    Believe me or not we do not require multi year contracts - still we have customers who are for more than 10 years with us. I think quality of service and overall satisfaction is more important and will keep customer not only with you but also a happy customer with you. I prefer that, than to have an unhappy customer who is staying with you only because of the contract - and I know a lot of customers at other companies like that - just read WHT forums to find out about them.

    Tell you even more - one of divisions of our company has exclusively month to month contracts - one of the fastest growing divisions, BTW - nobody left so far - and if anybody left - they just went out of business, but not because they've switched to another vendor.
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  5. #5
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    I've tried to always sign 3 year deals. It's always an absolute pain to negotiate as a lot of companies bank on you not wanting to move your kit, so jack up the price by 2 or 3 times.

  6. #6
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    1 yr is the most I'll sign.
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  7. #7
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    Quote Originally Posted by FastServ View Post
    1 yr is the most I'll sign.
    Mind to elaborate on why?

  8. #8
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    3 years is the norm, I know some people with 5 year so it is not too unheard of.. but our next move is looking to be a 10 year lease.

    then benefit of the 5 year over 3 year and 1 year term is the lock in annual rate increase that is discounted for longevity and a discounted footprint cost.

    A company with 90% of their customers in a 3 year or 5 year term is HUGE on many levels.

  9. #9
    Quote Originally Posted by WireSix View Post
    Mind to elaborate on why?
    Buyers and sellers market is too dynamic - nobody knows what will be in 1 year pricing wise, especially on the bandwidth side. You never know about support quality, "upgrades", growing "pains" in 1 year. Company could be sold - bunch of reasons...
    All our contracts that run out we didn't renew (except lease on real estate) - month to month.
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  10. #10
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    Quote Originally Posted by tulix View Post
    Buyers and sellers market is too dynamic - nobody knows what will be in 1 year pricing wise, especially on the bandwidth side. You never know about support quality, "upgrades", growing "pains" in 1 year. Company could be sold - bunch of reasons...
    All our contracts that run out we didn't renew (except lease on real estate) - month to month.
    Have you seen the rapid price increase on datacenter space? You surely must. I would much rather know my rate goes up 3-4% a year vs 20-30% on renewal contracts that I have been seeing in this market.

    Maybe ATL is different but DC sure isn't a fun place to be.

    Also I don't know how your business is structured but people on a month to month contract means absolutely nothing to banks if you ever want to use them for credit or any sort of financial solution of multi million dollar arrangements.

    No contracts = no binding method of incoming revenues.

  11. #11
    Quote Originally Posted by Spudstr View Post
    Have you seen the rapid price increase on datacenter space? You surely must. I would much rather know my rate goes up 3-4% a year vs 20-30% on renewal contracts that I have been seeing in this market.

    Maybe ATL is different but DC sure isn't a fun place to be.

    Also I don't know how your business is structured but people on a month to month contract means absolutely nothing to banks if you ever want to use them for credit or any sort of financial solution of multi million dollar arrangements.

    No contracts = no binding method of incoming revenues.
    We didn't see price increase actually so far that much - been in one DC 1996 - 2007, the new ones 2005 - now. It may change now - you never know...

    With banks also we never had any problems - have a CFO who is handling all that stuff very well - never got turned down on anything so far.

    Didn't have any - doesn't mean will never have - but at least so far never had...
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  12. #12
    Our contract term for colocation is 1 year.

  13. #13
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    Quote Originally Posted by tulix View Post
    We didn't see price increase actually so far that much - been in one DC 1996 - 2007, the new ones 2005 - now. It may change now - you never know...

    With banks also we never had any problems - have a CFO who is handling all that stuff very well - never got turned down on anything so far.

    Didn't have any - doesn't mean will never have - but at least so far never had...
    your CFO must be drinking buddies with the banks you deal with then.

    There is a reason why banks want to see LOI's or significant financial stability before they give out their money especially this day and age.

    Good luck with that though. All you need is one good power outage or building issue or severe network issue to make your month to month customers walk. Not a very sound business plan.

  14. #14
    Quote Originally Posted by Spudstr View Post
    your CFO must be drinking buddies with the banks you deal with then.

    There is a reason why banks want to see LOI's or significant financial stability before they give out their money especially this day and age.

    Good luck with that though. All you need is one good power outage or building issue or severe network issue to make your month to month customers walk. Not a very sound business plan.
    Thank you for the good luck - probably we all need that.

    Regarding problems with facility - this is exactly where our effort goes (to have the best environment), vs keeping customers who doesn't want you.
    Regarding business plan - since 1995 - still in business - go figure...
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  15. #15
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    A 3 year contract for colo/cabinets to try to 'lock your rate' is a failed logic. The colo can always raise their power rates in response to utility rates. There is always fine print in any contract that lets them jack things up on you, typically with some kind of notice or sometimes even with none. Locking into 3 years just shoots yourself in your foot when you decide you've had enough and want to move on.
    Fast Serv Networks, LLC | AS29889 | Fully Managed Cloud, Streaming, Dedicated Servers, Colo by-the-U
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  16. #16
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    Quote Originally Posted by FastServ View Post
    A 3 year contract for colo/cabinets to try to 'lock your rate' is a failed logic. The colo can always raise their power rates in response to utility rates. There is always fine print in any contract that lets them jack things up on you, typically with some kind of notice or sometimes even with none. Locking into 3 years just shoots yourself in your foot when you decide you've had enough and want to move on.
    Generaly those contracts get redlined with a term/verbage stating they have to give you x day notice before they do that AND they must give you the option to break contract if they do it.

  17. #17
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    I'm locked in / pre-paid for a full year on my colo with Fazewire. Next time I'll probably have something like 5 years if I get new equipment by then lol.
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  18. #18
    We have some customers who are pre-paying for the whole year since they are getting discount. Actually they are asking us about that, not even us - mostly because of the discounts.

    In some cases 5 year contacts do make sense, but may be just one in a five cases on average. Otherwise I would go with month to month or max a year.
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  19. #19
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    For smaller clients (20 cabs or less), I encourage people to take a term (1-2 years) and have a clause to allow for extension with a nominal price increase (say 3-5%). It hedges on price increasing (power is always an odd variable), allows for a win-win for both parties, and gives you an option to leave if there is a need to.

  20. #20
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    Most expect you to sign yearly, but normally if we don't know the company and have never used them before, we have a trial period for a month or two and then sign a yearly or longer contract.
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  21. #21
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    As a colo provider we offer 1 year contract with a 1 year guaranteed renewal option at the same rates. This seems to be received well by customers as it offers a bit of the "best of both worlds". We also have a unique SLA that provides new clients with a comfort level: Instead of penalties and refunds, we offer the client the ability to walk away if we fail to achieve the performance levels we guarantee. I have found that after one year, most clients will opt for a longer term contract rather than simply exercising their option for the additonal year renewal.

  22. #22

  23. #23
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    When we first started, we only did 1 year contracts. As business expanded, 2-3 year contracts started to make sense, as we knew exactly what we needed and had a good idea of whether it would still be needed 3 years down the road. If there's a reasonable discount for a 3 year contract compared to a 1 year contract, we'd rather save the money.
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  24. #24
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    Quote Originally Posted by FastServ View Post
    A 3 year contract for colo/cabinets to try to 'lock your rate' is a failed logic. The colo can always raise their power rates in response to utility rates. There is always fine print in any contract that lets them jack things up on you, typically with some kind of notice or sometimes even with none. Locking into 3 years just shoots yourself in your foot when you decide you've had enough and want to move on.
    So what happens when you have had enough, and your client base is still in the middle of a contract with you at the facility? Would you look to offload clients on another provider? What if they did not want to move?

  25. #25
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    Power is always a rising cost, especially here in the UK. Bandwidth may drop in price, but in the scheme of things, is not a high percentage of the total cost.

    Moving datacenters is a serious pain, you must be mental to want to do that every year (even if you only have 1 cab!)

    If you want to run your business properly then you'll understand that fixing prices helps a lot with working out your margins and with giving consistent pricing for your clients.

    I do have a feeling DC's are moving away from long contracts though, as they know they'll be jacking up prices year on year.
    Last edited by jpwjpw; 11-17-2009 at 07:52 AM.

  26. #26
    I would never do a colo contract longer then 12-months.

  27. #27
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    Same here never longer than 12 months. But we have had monthly contracts also. I think anything more than a year at a time is a bad idea. Too much can change in just a short period of time.

  28. #28
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    I'm seeing most new clients start with month to month, and after a few months opting for possibly a one year term. Larger clients tend to lock in longer terms.
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  29. #29
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    All these people talking about 12 months or less for a contract....

    Are you talking about a single server colo or a at least a rack?

  30. #30
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    We're generally signing "wholesale" contracts, thus getting 10+ year agreements. We also contract the bandwidth separately, as the vendors are different, and those we always do 1 year terms, though for dark fiber we'll also do longer term agreements.

    Now, most of our customers just go on month-to-month agreements, those that o sign contracts will generally go with a 1 or 2 year term.
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  31. #31
    By the way, what most companies do if you break the contract? For example after 3 months you are out of business and want to stop? Do you need to pay all remaining months anyway, or if you don't use colo anymore you pay for example 30%, etc.?

  32. #32
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    Quote Originally Posted by borgdrone7 View Post
    By the way, what most companies do if you break the contract? For example after 3 months you are out of business and want to stop? Do you need to pay all remaining months anyway, or if you don't use colo anymore you pay for example 30%, etc.?
    You have to pay the remaining balance left on your contract.

  33. #33
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    My personal colo is month to month. Still well priced.

  34. #34

    oops

    Quote Originally Posted by Spudstr View Post
    You have to pay the remaining balance left on your contract.
    So if you don't own bank, you may as well pay everything upfront.

  35. #35
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    Quote Originally Posted by boonchuan View Post
    Just wondering how old is your contract for colocation? Mine is 1 year but I am thinking of extending it. Reason being every time there is a contract renewal it is a great hassle to bargain, can take up to weeks before we arrive at a price. Tired of such bargaining. But worried on too long a commitment period.
    Our full rack contracts have a period of two years.
    Our customers (co-location / dedicated server) get a quarterly contract or year contract, depending on their needs.

    However, for 1/4, 1/2 or 1/1 racks we offer, the period is always a contract of a year. Because we need to make the same commitment to our suppliers.

  36. #36
    The length of term varies by customer. Typically enterprise customers are buying equipment with the expectation of using it for 3-5 years.These customers are looking for 3-5 year contracts and normally are interested in being able to expand easily within a facility. They make a planned migration into a new datacenter that can last from 30 days to six months. They dont want to make another in 1 or 2 years.

  37. #37
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    Quote Originally Posted by borgdrone7 View Post
    By the way, what most companies do if you break the contract? For example after 3 months you are out of business and want to stop? Do you need to pay all remaining months anyway, or if you don't use colo anymore you pay for example 30%, etc.?
    No, for countries using the English legal system (which includes the USA) you never have to pay the remaining balance when you break a contract; you only have to pay the other party's costs that have resulted from your breaking the contract.

    If there is an amount specified in the contract, you only have to pay it if the other party can show it is a genuine estimate of the costs they will incur if you break the contract.

    Clauses in the contract stating you have to pay more than that are penalty clauses, and are not enforceable.

  38. #38
    Tim

    So you are saying that all of us can just shut off our services with our bandwidth or landlords and just walk away? I think you are mistaken. Some contracts do have early termination clauses that actually charge you less than what the contract value. That is not a penalty clause. For example, ATT Wireless charges $200 if you break your term agreement for your cell phone.

    We all deal with contracts. I signed a lease for Colo4 when we first started this facility. I signed a contract with Level3 when we started selling bandwidth and have signed many more over the years. Based on your advice I could have just walked from any of them without any liability to me or my company. I would be interested to hear what agreements you have in place with your vendors and how you have been successful just telling vendors that according to the English Legal System a term contract is not enforcable.
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  39. #39
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    Quote Originally Posted by Colo4-Paul View Post
    Tim

    So you are saying that all of us can just shut off our services with our bandwidth or landlords and just walk away?
    I didn't say anything like that. I only commented on what you have to pay if you break a contract.
    Quote Originally Posted by Colo4-Paul View Post
    Some contracts do have early termination clauses that actually charge you less than what the contract value. That is not a penalty clause.
    It may or may not be. It depends on whether the amount is the costs to the other party of your breaking the contract.
    Quote Originally Posted by Colo4-Paul View Post
    We all deal with contracts. I signed a lease for Colo4 when we first started this facility. I signed a contract with Level3 when we started selling bandwidth and have signed many more over the years. Based on your advice I could have just walked from any of them without any liability to me or my company.
    No, that's not what I said. I said you are liable for the costs they incur as a result of your breaking the contract.

  40. #40
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    Quote Originally Posted by tim2718281 View Post
    I didn't say anything like that. I only commented on what you have to pay if you break a contract.

    It may or may not be. It depends on whether the amount is the costs to the other party of your breaking the contract.

    No, that's not what I said. I said you are liable for the costs they incur as a result of your breaking the contract.

    Please point out case law where this has applied. I would personally love to know that I would only be liable for pennies on th dollar compared to whole contract amounts.

    There is a point why lawyers draft contracts, and not COO's etc. If you sign a contract saying x and Y the other company is etitled to X and Y, if you go out of business they are still oblidged to collect on their contract.

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