Contract Disputes Involving Service Level Agreements (SLAs): Are They Enforceable or Not?

Service level agreements (SLAs) are common terms in vendor contracts. While they are most commonly used in the information technology (IT) sector, corporate customers can—and frequently do—use SLAs to help protect their interests when contracting with all types of service providers. But, are SLAs enforceable? Find out from an experienced Miami commercial litigation attorney at Edelboim Lieberman.

Are Service Level Agreements (SLAs) in Vendor Contracts Enforceable? It Depends.

Whether service level agreements are enforceable depends on the terms of the parties’ contract. Oftentimes, this will be a central issue (among many others) during the negotiation process.

Corporate customers will typically seek to make SLAs enforceable, while vendors will prefer for SLAs to be more along the lines of non-binding commitments. There are arguments on both sides. For customers, being able to enforce SLAs helps ensure that vendors will uphold their end of the bargain. For vendors, facing default and termination based on failure to meet certain standards—while still meeting their fundamental obligations under the contract—can be unreasonably risky.

As a result, in many cases, the parties will compromise. They might agree that the vendor will make good-faith efforts to comply with a comprehensive list of SLAs, and that substantial or repeated failures will justify a claim for breach. Alternatively, they might agree that the vendor will only be bound by a small set of clearly defined SLAs, and that any violation will constitute grounds for default or specified remedies.

These are just two examples of numerous possibilities.

Ideally, the parties’ contract will clearly state whether the SLAs are enforceable—and, if they are, it will also state what can happen in the event of noncompliance. If the enforceability of SLAs is not clear from the plain language of the contract, then it will be necessary to try to discern the parties’ mutual intent at the time of contracting. Of course, if the parties are in disagreement regarding the enforceability of SLAs, they will probably have opposing views on what was intended, and this will lead to contentious disputes in many cases.

Dispute Resolution Involving Enforceable Service Level Agreements (SLAs)

Let’s say the SLAs in a commercial contract are enforceable. What does the customer need to do to enforce them? What, if anything, can the vendor do to defend against default and termination?

For both parties, a key first step in this scenario is to confirm whether the vendor has in fact breached one or more SLAs. Oftentimes, SLAs are not as clear as they should be. This can lead to disputes involving intent and interpretation as well. If the vendor’s obligations under an SLA are not clear, then it will be difficult for the customer to successfully argue that a breach has occurred.

Disputes can also arise when compliance with an enforceable SLA is not quantifiable. For example, if an SLA requires the vendor to use its “best efforts” to achieve a particular outcome for the customer, proving noncompliance can be challenging (but is not necessarily impossible). Similarly, if neither party has the means to measure compliance with an SLA (i.e., if neither party has the technological capabilities to accurately calculate downtime), this can also make enforcement difficult.

In any case, when facing disputes related to enforceable SLAs, commercial parties will need to comply with the dispute resolution provisions in their contract. Commercial contracts frequently require the parties to use alternative dispute resolution (ADR) mechanisms instead of going to court, although exceptions may apply in some cases. Provisions regarding remedies, time restrictions, and liability for attorneys’ fees will require careful consideration as well.

Additionally, many contracts that include enforceable SLAs also include specific penalties for non-compliance. If a contract calls for a credit, partial refund, or no-cost term extension for an SLA violation, this may or may not be the exclusive remedy that is available.

What if Service Level Agreements (SLAs) Aren’t Enforceable?

What if the SLAs in a commercial contract aren’t enforceable? Or, what if it isn’t clear whether a commercial contract’s SLAs are enforceable?

In these scenarios, it will often be up to the parties to decide how to handle the situation. If the relationship is important to both parties, then it may make sense to come together and try to find a mutually satisfactory path forward. On the other hand, if the customer is truly dissatisfied or if the vendor is fed up with trying to meet unreasonable expectations, then it could be time to consider other options.

Does It Make Sense to Renegotiate? Or, Is It Time to Move On?

Regardless of enforceability, reaching an agreement is always an option. There is nothing that says either party must pursue ADR or litigation in any particular scenario. If both parties are interested in maintaining the relationship, and if the current SLA structure is untenable or unsuitable for any reason, then renegotiating may be the best path forward. Here too, there are numerous options available—from one or both parties agreeing to certain concessions to the parties working together to entirely overhaul their SLAs.

However, if neither party can truly get what it wants from the relationship, then it may be time to consider moving on. Whether this involves the customer filing a claim for breach or it involves negotiating the termination of the parties’ contract will depend on the circumstances involved. In any case, informed decision-making is critical, and both sides will want to consult with an experienced Miami commercial litigation attorney to ensure that they are making forward-thinking and strategic decisions under the circumstances at hand.

Schedule a Call with a Miami Commercial Litigation Attorney at Edelboim Lieberman

Do you need to know more about how to resolve a commercial contract dispute involving service level agreements (SLAs)? If so, we invite you to get in touch. To schedule a call with an experienced Miami commercial litigation attorney at Edelboim Lieberman, please call 305-768-9909 or contact us online today.