Abstract: A method of establishing business contracts with penalty credits for service level agreement violations, including determining business goals of a customer, determining business goals of a provider, determining benefits and losses of the customer as function of a service offered by the provider, determining benefits and losses of a provider as a function of the service offered to the customer, determining a type of service level agreement metric to be monitored and measured, determining an interval over which penalties are assessed, determining a particular target value of the service level agreement metric, determining a means of evaluating the service level agreement metric, and computing an optimal penalty credit structure achieving the business goals of the customer.

Abstract: A provider of standardized services is provided with guidance on the design of pricing structures for contracts regulating the provision of a commodity good between a supplier and a customer. These are contracts characterized by long duration and dedicated infrastructure. The provision of the commodity good is variable over time, and the rate of provisioning is continuously monitored. Examples are kilowatt hours in the case of electric energy and megabytes/second in the case of Web hosting.