David Downie, Partner, McCullough Robertson.
Consistent with service credits driving behaviour, the quantum of service credits that accrues often depends on the time taken to fix the problem. For example, if the service level for availability is 99 per cent over a month and $100,000 is payable if this is not met then the supplier does not have any incentive to fix the problem once the service level is breached. If instead $10,000 per hour is to be paid until the problem is fixed then that is likely to encourage the supplier to fix it as soon as possible.
Service credits are sometimes stated as being a percentage of the fees (e.g. one per cent of the monthly fees payable for a service for each hour that the service is unavailable). Suppliers often also limit the total amount of service credits payable across all service levels to a percentage of the fees payable under the agreement -- 10 per cent is a common percentage. The figure you ultimately end up with will depend on your priorities and the negotiating position of the parties.
Conclusion
Next time you negotiate an agreement with a service provider be sure to pay due attention to the applicable service levels and associated service credits. If the regime is too relaxed you may find you are taking your supplier on trust. If the regime is too onerous, you may find you are paying for a level of service that is not required or a service credit regime that does not drive desirable supplier behaviour.
David Downie is a partner in the intellectual property group of law firm McCullough Robertson. For more information please contact him at ddownie@mccullough.com.au.
IT Advocate is CIO’s series of columns devoted to legal issues and IT.
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