Colocation data centres are a popular option for organisations that use a third party operator to host their IT equipment. But in procuring this service, what are the key issues to consider and how should this inform your contract drafting?

In this second article in our series on data centres, we set out the key elements you would expect to find in an agreement for the provision of colocation services – meaning the provision by a data centre operator of technical IT space, with power, cooling infrastructure and physical security. We look at some of the clauses they will typically contain in order to outline the key points to consider when putting such arrangements in place.

What is a "colocation" data centre?

"Colocation" is the term used to describe when enterprises occupy space in a data centre (owned and operated by a data centre provider) and host their IT equipment in that space. Each enterprise will have a relatively small amount of space (a number of racks, or cages), with each hall within the data centre housing multiple enterprises – hence the enterprises are 'co' located together in a single data centre. Where there are multiple enterprises, it is often referred to as 'retail colocation'.

Sometimes an enterprise may take a much larger amount of space e.g. a whole data hall or a whole data centre (also known as a facility). This is often referred to as 'wholesale colocation'. For agreements covering wholesale colocation, the services and clauses listed in this article are broadly valid, but the agreements go into much more detail and cover other issues not listed below.

What is a colocation agreement and what services are provided?

In a colocation agreement, the data centre operator provides:

  • Space – a number of racks, or cages, or a marked area with a fixed square footage;
  • Power – a specified maximum number of kilowatts delivered to the enterprise's space and IT equipment i.e. servers;
  • Cooling – of the space where the enterprise's IT equipment is operating. Servers are most efficient when operated in an environment that is temperature and humidity controlled; and
  • Security – of the physical data centre space, both externally to access the facility and then internally within the common areas and between each enterprise's space.

Is this a property agreement, or an IT agreement?

Neither – a colocation agreement is a unique blend of both. The property element is the space. In the UK, the data centre operator could grant a lease or licence for the space. For retail colocation, the operator grants licences to enterprises to occupy the space. The IT element of the agreement only covers infrastructure used to support IT i.e. the power and cooling. Note that the data centre operator does not own, provide or manage the enterprise's IT equipment or the services running on that equipment.

So what sort of clauses does the agreement contain?

The list below sets out the key clauses and concepts of colocation agreements (ignoring clauses found in any legal agreement, such as liability caps, warranties, termination, boilerplate etc):

  1. Preparation of the Space for occupation by the enterprise prior to the 'ready for service' date;
  2. Grant of the licence to occupy and to connect to the power at the agreed power delivery point;
  3. Obligation on the operator to provide the Services, described as power, cooling and security;
  4. Service Levels to specify the performance of certain aspects of the Services, usually the power availability and maintaining temperatures in an agreed rate, potentially with credits for failing to meet the service levels;
  5. A list of prohibitions on acts or omissions of the enterprise which could damage the facility or other customers' equipment, or impair the operation of the mechanical and electrical equipment within the facility;
  6. Rights for the operator to manage the facility for the benefit of all customers e.g. rights to remove from the facility anyone creating a threat to health and safety, requiring all customers to adhere to the operator's on-site policies, and the ability to require an enterprise to reduce its power draw if it is exceeding its capacity;
  7. Requirements for the enterprise to remove its equipment at the end of the term and rights for the operator if the equipment is not removed;
  8. Clarity that the operator does not insure the enterprise's IT equipment operating from the facility;
  9. The operator's obligation to maintain and repair the facility and to enter the enterprise's space, if necessary, to do those things or in an emergency;
  10. How the regime for planned and emergency maintenance works; and
  11. How power will be charged (inclusive or exclusive and, if so, the rates).

Typically colocation agreements are structured as a Master Services Agreement under which a customer can place orders for colocation services, and ancillary services such as cross connects, remote hands and installation services.

Is a colocation service agreement right for you?

Colocation is only one way for organisations to take space in data centres. Other options are to have a lease and services agreement (which gives a property right for the customer in the facility) or for the customer to take a lease of the facility and then to run it independently themselves. Organisations will need to understand the pros and cons both operationally and legally of the different options to understand whether retail colocation is right for them.

The points above offer guidance on the key areas to consider in a colocation agreement but the actual clauses will cover a wealth of detail and account for each organisation's unique circumstances and needs. Our expert Data Centres team is fully immersed in this sector and can help you navigate the legal aspects of data centre operations – including supporting on contract development to help maximise your investment and minimise potential issues down the line.

To talk more on this or any other data centre-related issues, contact Jocelyn Paulley. You can also read more from our data centres series in the related article links below. In this series, the topics covered range from data centre operation, contracts and planning, to financing and power.