Service Level Agreements


Common Provisions in Terms and Conditions

□ Root cause analysis

  • - Identify reasons for failure
  • - Develop corrective action plan
  • - Implement preventative corrections

□ Cost and efficiency reviews

□ Continuous improvements to service levels

□ Termination for failure to meet service levels

□ Cooperation

Common Provisions in Service Level Agreements and Attachments

□ Measurement window

□ Reporting requirements

□ Maximum monthly at-risk amount

□ Performance credits

  • - Specify amount or percentage
  • - Total category allocation pools
  • - Specify parameters, including timing and notice requirements

□ Presumptive service levels

□ Exceptions to service levels

□ Supplier responsibilities

□ Additions, deletions, and modifications to service levels

□ “Earn-back” of performance credits

□ Map the form of service levels

  • - Title
  • - Measurement window
  • - Actual service level or expected and minimum service levels
  • - Calculation for how service level is derived


Service levels are an essential tool in many different types of information technology (IT) contracts to ensure proper performance of the services and supplier obligations and user satisfaction. IT agreements, whether professional services agreements, software license agreements, reseller agreements, cloud computing agreements, or other types of IT agreements, should contain precise terms with respect to the obligations of the supplier to perform its obligations consistent with and, at a minimum, in accordance with the specific service levels that are articulated throughout the agreement and in a service level exhibit that is attached to and incorporated into the underlying agreement. It is important to note that provisions related to service levels are commonly included throughout an agreement and also specified in a service level exhibit.

As mentioned in the preface to this Second Edition, one of the most alarming trends in the industry is vendor reluctance, particularly in cloud engagements, to commit to meaningful service levels. Instead, they include service level language that looks like “real” service level protection, but is, in fact, largely illusory. On average, 30% of the service level language we review fails into this category. It would literally be impossible for the vendor to ever breach service level commitments. That is why, these same vendors proudly claim they have not had a service level failure in over a decade. It is an easy thing to say when there is no way the vendor could ever actually fail to achieve the requirements. They are simply so heavily qualified and diluted, that the customer receives almost no protection, including even a basic right to terminate the agreement. All too often, customers are tied to contracts paying substantial monthly fees for a service that is not performing with no means of getting out. It is for these reasons that customers should review service level language with the greatest care.

Service Level Provisions Commonly Found in the Terms and Conditions

The following types of service level provisions are commonly found in the body or terms and conditions of an IT agreement. These types of provisions contain terms specific to service level failures and improvements over time. Specific details with respect to the service levels are more commonly detailed in a separate service level exhibit to the agreement.

Root Cause Analysis, Corrective Action Plans, and Resolution

In the event that the supplier fails to provide the services in accordance with the service levels articulated in the service level exhibit, after a reasonable period of time after notice, the supplier should be obligated to perform a root cause analysis to identify the reasons for the failure and describe the process for developing a corrective action plan and implementing corrections to prevent the failure from occurring in the future. The agreement should also describe the supplier’s obligations with respect to correcting failures (at no cost to the customer) within a specified period of time or, if corrections cannot reasonably be implemented within the time specified, then a requirement that the supplier provide reasonable assurances that corrective steps will be taken that will result in a permanent correction and, in the meantime, workarounds have been implemented to prevent future failures while a permanent correction is being developed. It is imperative that these corrections, workarounds, and steps not result in any increased fees payable by the customer to the supplier. Each corrective action plan must contain, at a minimum, the following information and requirements:

■ A commitment by the supplier to devote the appropriate amount of time and supplier resources (such as skilled personnel, systems support, and equipment) to prevent further occurrences of the service level failure.

■ A strategy for developing fixes and improvements to prevent any of the same service level failure from occurring in the future.

■ A detailed project plan with timeframes for implementing the proposed and required corrective actions.

Where the root cause analysis reveals that the service level failure was not caused by the supplier, the agreement should require that the supplier continuously and timely cooperate with the customer to correct the failure. While the best case is that the supplier provides these services at no additional charge to the customer, it is reasonable and common for the supplier to charge reasonable fees for such services, which should not exceed the fees charged for similar services charged to the customer or supplier’s other customers. Where the root cause analysis demonstrates that the customer and supplier both shared in the cause of the service level failure, these same obligations of supplier should apply, but should be at no cost to the customer.

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