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Service Level Agreement Penalties

By Erik. Posted in Uncategorized | No Comments »

1) Fine: Clauses that indicate a fine are a common practice. In doing so, the seller must reimburse the customer for some of the damage, as agreed by both parties in the ALS. However, this penalty clause cannot guarantee full compensation for damage caused to the company due to a service failure. If a penalty was not included in the original ALS, the client may terminate the contract with impunity due to the breach of contract. Most service providers have standard SLAs – sometimes several, which reflect different levels of service at different prices – which can be a good starting point for negotiations. However, these should be audited and modified by the client and the lawyer, as they are generally favourable to the supplier. As more and more Chief Information Officers (CIOS) insist on the inclusion of different punitive clauses in alS, even suppliers have begun to take them seriously. Because sanctions are directly related to key performance indicators (KPIs), a supplier ends up losing money if agreed performance standards are not met. Typically, these processes and methods are left to the outsourcing company to determine that these processes and methods can support the ALS agreement. However, it is recommended that the client and the outsourcing company work together during the SLA contract negotiations to clear up misunderstandings about the support process and method, as well as management and reporting methods.

Management elements should include definitions of standards and methods of measurement, reporting processes, content and frequency, a dispute resolution procedure, a compensation clause to protect the client from third-party disputes arising from breaches of service (which should already be included in the contract) and a mechanism to update the agreement if necessary. AlS should have two components: services and management. A compensation clause is an important provision in which the service provider agrees to exempt the client company from possible violations of its guarantees.

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