Every so often the computer industry has to reinvent its delivery mechanisms. In the first place hardware is what we all bought and software came with it, then in the 1980s it was software that was king and in the 1990s integration seemed to be the keyword.

Now businesses are being offered portal services and ASP models which, on the face of it, also seem attractive to the customer but have real pitfalls from a legal perspective.

The term "application service provider" seems to be used quite loosely. It should apply as a generic term to describe a company that hosts software applications on centralised servers and then makes those applications available on a rental fee basis to customers who either subscribe via the internet or a private network.

My experience is that some software suppliers are describing their service as an ASP service simply because it is the latest buzz word.

The obvious advantage of using an ASP is that customers only need to pay for the software applications they are actually using rather than having to pay a licence fee for an application with facilities that may never be used.

But there are some considerable disadvantages in the ASP model that customers should bear in mind such as:

  • if you outsource your data and databases to be run on an ASP centralised server you begin to lose control of your data and databases and data security
  • there is an argument that by outsourcing data to an ASP there may be implications for compliance with the Data Protection Act 1998, particularly if the ASP server is not in the European Economic Area
  • some customers' needs may not be completely met by one ASP and therefore there have to be back-to-back arrangements with third party providers to ensure continuity. ASP's standard terms and conditions may not provide for this
  • a typical ASP service includes three distinct components: hosting, delivery and technical support. Our experience is that the ASP model is so new that most ASP standard terms and conditions do not satisfactorily address these three components
  • reliance upon an ASP will mean that it may not be a straightforward issue to move away from it the event that its contract is terminated or goes into liquidation. Questions will arise as to who owns the data that has been run on the ASP centralised server as well as how, from a continuity point of view, a seamless move can be made from a defunct ASP service to another provider.

    From a legal point of view it is extremely important, when choosing an ASP, to be sure that its terms and conditions meet the service levels and solution expectations of the customer to a satisfactory degree.

    The whole issue of negotiating and drafting computer contracts and service level agreements is addressed in my new book E-Licences and Software Contracts

  • Robert Bond is head of innovation and technology law at Hobson Audley solicitors and can be contacted via email at rbond@hobsonaudley.co.uk .


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