Service Credits vs Service Levels

10 September 2009

I was recently involved in a discussion on the pros and cons of service credits. A service credit is a refund given by a supplier to a customer if the supplier's service fails below a contractually-agreed service levels.

For example,  if a supplier was hosting a website for the customer and the contractually–agreed service level is website availability of an average of 99% or more over a monthly period. If, during one particular month, the availability were to average 97%, then the customer would receive a service credit – usually a percentage rebate on the following month's fee.

One key issue that can occur is that if the service falls below the agreed level, then the customer risks the chance that the supplier will prefer to pay the service credit on a long-term basis rather than fix the underlying problem. A preferred approach to reduce this risk is to have an additional provision in the contract for the supplier to use reasonable endeavours to fix any problem that occurs.

Although agile joint-working practices can help minimise such a risk, this is one area where contractual support is essential.

Note that the above is for informational purposes only and does not constitute legal advice

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