This contract tip is about when a service level should apply to a good or service.
Many contracts require products or services to meet performance standards. These standards have many names, including performance warranties, key performance indicators (KPIs), and service levels.
The contract typically would identify a metric - like availability, uptime, or output - and a consequence for the failure to meet the metric.
"Seller will cause the Service to operate X% of the time." or "Seller guarantees that the Equipment will manufacture at least X units per hour."
If your contract has service levels, consider whether the performance metric should apply to the entire term of the contract.
Using one metric for the contract term may work if the product is off-the-shelf and is fully operational as soon as it is installed or used.
But if the product or service requires implementation, commissioning, or customization, you might need to add a time buffer. The time buffer should equate to how much time is reasonably needed to ramp up the product.
Take time to think through the operational and technical aspects of your deal. There is no one approach fits all when it comes to performance metrics.
What mistake do you see most often when it comes to contract metrics?
