UK: Law Firms And Contracting For The Cloud

Last Updated: 14 January 2015
Article by Richard Kemp

The growth of cloud computing as a means of obtaining computer and IT service presents opportunities and challenges for law firms. The opportunities – in terms of scalability, flexibility and ease of use and, for most firms, pricing – are well documented, not least by cloud service providers themselves. This article will set out a number of the risks, challenges and considerations to be borne in mind by law firms taking the decision to switch some or all of their computer and IT requirements to the cloud, whilst outlining possible solutions. The question of cloud contracts throws up a slew of issues, both general and pertaining specifically to law firms, covering commercial, technical and operational terms, general and specific law firm regulation. Law firms need to maintain trust and service with their clients and effective working relationships with their suppliers – and both with the Solicitors Regulatory Authority (SRA) - so these issues need to be dealt with. Like all areas of IT, the cloud is replete with acronyms and a short glossary is provided below for clarity.

Glossary

ASP (Application Service Provision)

An intermediate stage between traditional on-site, server-based, licensed software use and SaaS where the server is located at the data centre but still dedicated to the customer, whose software is licensed to run on that server

Cloud

The IT metaphor for the Internet

Cloud computing

The supply as a service of software, storage, processing and other computer resources from a data centre by a third party cloud service provider

Cloud service provider

A provider of cloud computing services

Data centre

The central location where the servers and other equipment used to provide cloud computing services are housed and managed

Hosting

The provision of one or more elements of cloud computing by a cloud service provider, normally through the provider's data centre

Hybrid cloud

The supply of cloud computing services on a mixed public cloud and private cloud basis, typically where the public cloud provides additional flexed capacity to the primary private cloud service on an as needed basis.

Private cloud

The supply of cloud computing services where the servers (by which the service is provided) or the space in the data centre (where the servers reside) are dedicated to a single customer

Public cloud

The supply of cloud computing services where servers and space are not dedicated to a single customer but pooled between customers through virtualisation

SaaS (Software as a Service)

The supply by a cloud service provider of standardised software functionality as a service (not a licence) on a secure, 'web ready', one to many, scalable, per-user priced basis

Virtualisation

The creation of additional processing capacity on a single server by a software hypervisor which organises the deployment of multiple operating systems running simultaneously on that server

Cloud computing is at an early stage of development right now and as the number of law firms opting to use it grows, so the temptation can be to rush into it as a catch-all, simple answer, without performing the due diligence which would be par for the course when contracting out other services. In an increasingly competitive and Darwinian law market environment, the fear of being left behind by competitors and not offering 'the latest thing' can blind law firms to the need to proceed in a cautious and thorough manner, but it's vital, for all parties, that a structured approach to Cloud procurement is adopted. Steps around this begin with producing a statement of requirements, drawing up an internal bid and then running a structured procurement process, whether this is based on open tender or preferred bidders. Compiling an internal risk and compliance report will help to crystallise any concerns and will provide a useful touchstone as the procurement process moves forward. Questions which need to be asked when putting this report together include the recovery and continuity arrangements that are in place in the event of things going badly wrong, whether a switch to an alternative supplier is viable and how long it would take, and an examination of the regulatory compliance of the supplier. Before any contract is agreed, the law firm should carry out technical, financial, commercial and legal due diligence on the supplier.

Bearing in mind the value and importance of the information which a law firm is going to be storing in the Cloud, supplier stability is a key point to establish, especially as the market is at a stage where many new businesses are being formed, not all of which will last the course.. There is no magic here, but it is a question of doing the necessary to run current credit searches, and take references from other former and current customers. Cloud computing increasingly involves the assembly of different parts from different sub-contractors so the law firm should look carefully at whether and if so how the cloud service provider uses third parties, in particular to check that there is no single point of failure. Having gathered together all of this information, it's important that you ask your supplier to set out, in writing, exactly what their policies and procedures are in terms of security, in particular the suppliers ongoing ability to meet their contract requirements on matters such as security and passwords in the event of a system failure or outage of some kind.

One of the issues which has to be firmly established when a SaaS or other cloud computing contract is being drawn up is that of data, and, most importantly, what commitments the supplier can give as to return of customer data both during the agreement and after it has ended. Details which have to be pinned down include the file format of returned data, whether this is a form which the law firm will easily be able to use, the length of time between the request for and return of the data, and whether the provider will 'return first, argue later' - commit to return customer data no matter what the circumstances at the time of the request. The law firm should consider whether it is practical to keep the up to date data on site or elsewhere – most law firms use Mimecast so will (already) have their email data stored and accessible through them. Whilst this may seem to negate the convenience offered by Cloud storage it will offer a degree of security and reassurance whilst not, if only recent data is included, throwing up too much in the way of extra IT work.

Many issues can arise during the lifecycle of a cloud contract, and a few are listed here as requiring consideration:

  • What is the duration of the contract, the renewal process and the amount of notice required?.
  • What is the SLA - the cloud service provider's commitment to service levels and service credits for service outage?
  • Who bears the risk of Internet and telecoms downtime?
  • How much liability does the provider accept in the case of breach (12 months charges is common) and does this operate outside the service credit regime?
  • Are there higher liability limits for infringement of confidentiality or third party intellectual property rights?
  • What are the maintenance and support arrangements (especially if the monthly per seat charge is quite low)?
  • What flexibility does the provider have to increase charges or changes other contract terms?
  • What does the contract say about disaster recovery and business continuity arrangements and can you test them periodically?
  • How does the contract deal with exit/disengagement – is there a written plan which sets out what is to happen if the law firm wants to move away from the provider (regardless of circumstances at the time)?

A particular feature of law firm cloud contracts is regulatory compliance. In the language of the SRA Code of Conduct (code), moving to a cloud platform is likely to constitute outsourcing of legal activities or operational functions that are critical to the delivery of any legal activities. Accordingly, Outcome (O)7.10 of the code states that the SRA, or its agent, must, throughout the duration of the contract, be able to 'obtain information from, inspect records of, or enter premises of the [Cloud service provider] in relation to the outsourced activities or functions'. O(7.10) also requires that the outsourcing must not be allowed to adversely affect SRA monitoring compliance, nor alter a firm's obligation to its' clients, or cause any breach of SRA authorisation requirements.

Where, as is likely, data held in the cloud is also personal data – data referable to living individuals – under the Data Protection Act 1998 (DPA), the law firm will need to ensure that data protection requirements are also met. Generally, the cloud service provider will be a data processor, rather than a data controller for DPA purposes, but care will need to be taken as to when a provider may become a data controller in relation to the personal data that the law firm holds.

Details such as these must be addressed in the contract and should be linked back to the protection policies, procedures, notices and terms existing within the law firm, factors which also include whether the data will ever be exported outside the EU.

The third regulatory area for attention in law firm cloud contracts is data sovereignty – the extent to which data is subject to the laws (especially law enforcement access and privacy) of the country where it is located. Snowden, the uncertain ambit of the US Patriot Act and the ongoing 2014 proceedings around US authorities seeking to subpoena data from Microsoft's Dublin data centre whilst each generating more heat than light, continue to point up the growing importance of this issue. Generally, it is fair to say that in certain circumstances the possibility of lawful access by home or (through the web of international Mutual Legal Assistance Treaties) overseas law enforcement or intelligence agencies cannot realistically be excluded.

So when a law firm is selecting a cloud service provider, the location of its operations, subsidiaries and data centres should be a selection criterion on the initial due diligence list. Another point to consider is whether law firms embarking on cloud computing should include in their client engagement letters terms – a bit like the usual anti-money laundering provisions – dealing with data sovereignty.

This leads to the last point this article looks at – the extent to which cloud computing can impact on other contracts or policies of the law firm. So, if using multiple Cloud suppliers, for example, it is vital that the firm maintains a consistent approach across all suppliers, thus ensuring a standard level of service. It may be considered useful to include a term in general client engagement terms around the firm's use of cloud computing if this is relevant, or to vary the current terms when a vital IT or service component is being shifted to the Cloud. This variation could be especially relevant where a law firm client either is regulated by, say the Financial Conduct Authority (FCA), or requires its vendors (increasingly seen as including law firms) to comply with specific policies on matters such as data security.

Law firm Cloud Resources and materials:

The Law Society: Cloud computing (April 2014)

SRA: Spiders in the web: the risk of online crime to legal business (Mar 2014)

SRA: Silver Linings: cloud computing, law firms and risk (Nov 2013)

ICO: Guidance on the use of cloud computing (Oct 2012)

NIST (US): Cloud computing – features, benefits, risks & recommendations for secure, efficient implementations (June 2012)

The Law Society: Data protection, Information security, Business continuity (Oct 2011)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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