Top 5 Hidden Liabilities in Cloud Contracts
October 8, 2025 • 6 min read
- Marketplace Commitments: Many cloud contracts include minimum spend or committed use via third-party marketplace vendors. These can be non-cancellable and may not transfer in an M&A scenario, creating stranded costs.
- Breakage Penalties: Early termination or underutilization of reserved instances, savings plans, or committed use discounts can trigger significant penalties or lost discounts.
- Auto-Renewal Clauses: Some agreements auto-renew for multi-year terms unless proactively cancelled, locking in spend and limiting flexibility post-transaction.
- Unrecognized Usage Minimums: Contracts may include minimum usage thresholds that, if not met, result in additional fees or loss of volume discounts.
- Data Egress and Migration Fees: Hidden costs for moving data out of a cloud provider or between regions can be substantial and are often overlooked in diligence.
Mitigation Tips
Always request a full copy of all cloud agreements, review for non-standard terms, and model out worst-case scenarios for all commitments and penalties. Engage cloud and legal experts early in the diligence process.