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CCCA_V2No2_Col-CorpLaw-FIN.qxd:CCCA_V1No2_Col-CorpLaw-V1.qxd 4/30/08 4:40 PM Page 53 Corporate Law Promising to try Are SLAs merely limitation of liability in disguise? ervice levels and service level credits Weighting and cascading from liability” and if the service provider Sare an accepted aspect of outsourcing If the contract has multiple service levels, takes steps to work around the problem. contracts, but they are difficult to negoti- the customer’s potential remedy is eroded However, the result is not so reasonable if ate and their benefits are sometimes illuso- by the combination of a weighting it is intended to include financial relief, as ry. In fact,they appear to be evolving from requirement and a single event clause. some providers contend.For one thing,the a customer tool meant to ensure the qual- Weighting requires the customer to allo- converse does not apply. If a service ity and reliability of defined services to a cate a percentage of the at-risk amount to provider’s failure to perform makes it hard- service provider tool for limiting liability. each service level.A service provider may er for the customer to carry on its business, In some service level agreements, the also exclude responsibility for the cascad- the service provider is not responsible if it promise to perform has been replaced by a ing effect of a single event that causes only promised “to try” and can show it “promise to try.” Not satisfied with setting multiple service level failures, and insist used reasonable efforts. Failing that, it can a service level target below 100%, some that the customer is only entitled to a rely on the sole remedy clause, the at-risk providers will agree only to use commer- service level credit for the failed service amount clause, weighting and cascading, cially reasonable efforts to perform the level with the highest weighting factor. If the force majeure clause and the limitation of service to the specified target. things go seriously wrong, only a fraction liability clause. Service providers routinely take the of the at-risk amount is actually at risk. When a service provider insists on position that service level credits are the being compensated due to customer delay, customer’s sole remedy, which means the Force majeure events one wonders who works for whom! The customer waives its right to damages, ter- The promise to perform has also been customer should at least be entitled to mination and specific performance in the qualified by exclusionary clauses in various comparable qualifiers and limits. event of poor service. forms, most commonly the force majeure This would not be so bad if service clause. It may be reasonable to excuse the Establish service levels before signing level credits were intended to approxi- service provider in the event of an earth- Finally, it is a bad strategy for the customer mate actual damages, but they rarely do. quake and hurricane (subject to the execu- to attempt to negotiate service levels and The contract will usually provide for an tion of an agreed disaster recovery plan), credits after signing an outsourcing contract. “at-risk” amount, which, according to the but some other items in the clause such as If the customer cannot settle service level market norm, can be expected to be in “external causes” probably go too far. requirements and remedies prior to signing, the range of 5% to 15% of the provider’s A customer's own historical service it should not make the mistake of attaching monthly invoice for the service. level data often includes the effects of force the provider’s generic service level frame- For this reason, the customer should majeure events.To adopt a service level tar- work with an undertaking to fill in the reserve the right to waive its entitlement get of 98%,for example,based on the cus- blanks later. The real issues surrounding to a service level credit and, instead, seek tomer’s historical performance and then service levels do not relate to the metrics damages (subject to the overall limits contractually exclude force majeure events themselves, but to the qualifiers and limits of liability in the contract) and other is a common double dip. that are built into the framework. remedies in the event of serious service level failure. In the case of a contract Relief against customer error Richard Coleman is a partner in theToronto involving a promise to try, it makes more Service providers commonly seek “relief” office of Osler, Hoskin & Harcourt LLP, spe- sense for service credits to be the sole for service level failures caused by the cus- cializing in providing end-to-end, results- remedy, but only if the service provider tomer’s errors or its failure to perform its oriented advice on outsourcing transactions has made the requisite effort to achieve obligations. This seems reasonable, if the including business process outsourcing, shared the service levels. word “relief” is intended to mean “relief service structures and offshoring. ÉtÉ 2008 CCCA Canadian Corporate Counsel Association 53