February 2009

01 Feb 2009

"We'll Try Our Best" – Best Endeavours Obligations In IT Service Level Agreements

In IT arrangements, the service level agreement (SLA) plays an important role in defining the relationship between the service provider and the customer. An SLA can apply to any or all of the components of an IT system that is serviced by a service provider. It will specify:

• the services to be supplied by the service provider to the customer; and
• the standards, or service levels, which must be met by the service provider in the provision of those services.

Not surprisingly, a key element of any SLA is the service levels themselves. Service levels are generally set for a wide range of measures. Two of the most common (which will be the focus of this article) are:

• helpdesk response times; and
• system defect fix or resolution times.

The response and resolution times will typically vary depending on the category or severity of the defect in question.

The form of the SLA put forward by the service provider will commonly qualify the obligations to meet the specified response and resolution times by providing that the service provider will use "best endeavours (or efforts)" or "reasonable endeavours (or efforts)" to meet these times. In other words, the service provider does not make a firm guarantee that these particular service levels will be met, so the times specified are essentially "target" times. From the service provider's perspective, there is always the risk of the unknown and there may be circumstances where, no matter how hard the service provider tries, it simply cannot meet the required timeframe. But on the other hand, where does this leave the customer if the obligation to meet the service levels is qualified in this way?

Best Endeavours - The Implications

What exactly does an obligation to use best endeavours entail? The meaning of "best endeavours" has been the subject of cases both in New Zealand and overseas. Various general definitions have been adopted by the courts, but in short, best endeavours confers a reasonably strong, but not absolute, obligation on a party to perform an obligation. It may require significant (but not ruinous) expenditure or other actions against the promisor's commercial interests. "Reasonable endeavours" has been considered by the courts to impose a lesser obligation.

In practice, determining what steps must be taken to satisfy a best endeavours obligation, and therefore whether or not the obligation has been met, can be difficult. In the event of a failure by the service provider to meet the response and/or resolution time(s), the key questions will be:

• What steps did the service provider take to meet the relevant time(s)?
• Should any additional steps have been taken?

Whether additional steps should have been taken will depend on the particular circumstances, including the nature of the agreement, the relationship of the parties and services to be provided. In many cases this is not going to be clear cut, leaving the parties uncertain as to whether the customer would have a valid claim for breach of contract.

Therefore, from a customer perspective, it may be better to require the service provider to make a firm commitment to meet the relevant times, as the position will be much more "black and white". However, before taking a stance on this issue, the customer should take the time to clearly understand what its business requires in the way of response and resolution times (ie the more important the system is to its business' operations and profitability, the shorter the timeframes and the greater the protections it will require). If the system is not critical to the customer's business, a best endeavours commitment may be adequate, as greater protections/more stringent service levels may well bring with them higher service fees payable to the service provider.

Negotiating Response and Fix Times

Given the competing interests of the customer and the service provider, it is worthwhile considering the following as mechanisms to provide the parties with appropriate levels of comfort in terms of the service levels required and the commitments made:

• Move the Goal Posts: Rather than just accepting "standard service levels", the customer should carefully consider the proposed response and fix times in the context of the customer's particular business needs. While there may be some degree of commonality, every business is different. For less critical service levels, the parties could agree to extend the times on the basis that the service provider make a firm commitment that they will be met. Alternatively, the customer could agree to pay higher service fees in exchange for an absolute commitment from the service provider to meet the specified service levels. This would compensate the service provider for the additional risk taken on.
• Three Strikes: As a "backstop" to a best endeavours qualification, there could be a proviso that if the service provider fails to meet the target times a certain number of times (eg three) in a certain period (eg a quarter), this will be deemed to constitute a breach of the agreement entitling the customer to terminate. 
• Averages: If a best endeavours qualification is accepted, there could be a requirement that the average time to respond to a call and/or fix a problem throughout a period (eg a quarter) be equal to or less than the target time given. Of course, if the service provider comes within the relevant time on one or more occasions, this will factor into the average calculated at the end of the period. This could be seen as a good incentive for the service provider to provide a timely service, but on the other hand it would leave the service provider some "breathing space" to miss the target times on other occasions.
• System Availability: If the times are kept as best endeavours targets, there could be a requirement that the relevant system remain fully operational for at least (for example) 99% of the time in any given month. This would typically be subject to various carve outs, such as where the failure of the system to remain fully operational is due to a failure of hardware for which the service provider is not responsible.

In the end, whether any of these positions (either on their own or in combination) are appropriate will depend on the particular circumstances, such as the nature of the customer's business, the services to be provided and the system in question.

Conclusions

In any SLA, the service levels and how they are expressed needs to be given particular attention.

Often the desire of a customer for certainty that issues relating to the system will be dealt with and resolved within specified time periods needs to be balanced against the service provider's concern about numerous variables that can affect its ability to meet service levels. While in some cases absolute obligations are necessary or critical to a customer's business operations, in many cases there may be scope for the adoption of mechanisms such as those outlined above. These mechanisms can assist in balancing the needs and concerns of both parties.

Author

Karen Ngan

Partner - Corporate & Commercial

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