Quick Tip #11: Don’t let a ‘sole and exclusive remedy’ sneak into your service credits
Service credit mechanisms are conventional in the marketplace as a commercial remedy for failure to meet service levels. We have seen an increase in the number of terms insisting that service credits are a customer’s sole and exclusive remedy primarily due to the upsurge in SaaS services. Service credits should serve two primary purposes:
a price adjustment to acknowledge that the customer has not received the level of service originally priced for, and
an incentive on the supplier’s performance.
If service credits are a sole and exclusive remedy, they become a substitute for a damages claim or a termination right, which is not the intention of including them. This mechanism drives material risk for customers in the vast majority of circumstances and customers should be very careful to avoid allowing a service credit mechanism to preclude them from bringing a damages claim or exercising a termination right. The damages caused by a failure to meet service levels could be well in excess of the amount available by way of a service credit. A sole and exclusive remedy mechanism also means that the supplier’s cap on liability for service failure is dramatically reduced to the amount of the service credit only.