What Happens to Your Customer Contracts When Your Cloud Vendor Goes Down?

Your biggest customer calls after a major infrastructure outage.

They want to know what your contract promises. How much uptime did you guarantee? What remedy do they receive? Can they terminate the agreement? Are you responsible for their losses?

You open the contract and realize the answers are not clear.

This is a common problem for growing technology companies. Founders often draft customer agreements around closing the sale. They focus on pricing, scope, payment terms, and liability. Service level language gets less attention.

That can become expensive when your infrastructure provider goes down.

The problem is simple. Your customer only sees your service. They do not care which cloud provider caused the outage. If your customer agreement promises more than your infrastructure contract supports, your company may have to absorb the difference.

Your SLA needs to match what your business can actually deliver.

The Risk Is Not Hypothetical

Cloud outages can affect companies far beyond the cloud provider itself.

In May 2026, a cooling failure at an AWS data center caused roughly 28 hours of disruption. According to CNBC, the outage affected trading at Coinbase and cash outs at FanDuel.

The financial exposure can be much larger than the remedy available under a typical cloud SLA.

Standard cloud service level agreements commonly provide service credits worth about 10% to 30% of a customer’s monthly bill. That may be a meaningful credit, but it can be nowhere near the revenue a customer loses during a major outage.

InfoWorld made a similar point in its analysis of a 2025 outage. Many enterprises assume cloud agreements provide more protection than they actually do. Provider contracts commonly exclude liability for lost revenue and brand damage.

That creates an important question for your own customer agreements.

What have you promised downstream?

Your SLA Promises Flow Downstream

Suppose your cloud provider guarantees a certain uptime level and provides a limited service credit if it fails.

Your customer contract promises stricter uptime and broader remedies.

You now have a gap.

If your provider fails and your service goes down, your customer may have rights under your agreement that you cannot pass back to the cloud provider.

The customer does not have a contract with your cloud provider. You do.

That means your customer facing SLA should be built around what your company can realistically support.

You should review the two agreements together instead of treating them as separate documents.

Service Credits Are Not the Same as Damages

This distinction matters when negotiating customer contracts.

A service credit usually reduces a future invoice. It is not the same as paying cash for the customer’s lost revenue.

Customers may also negotiate stronger remedies. Some enterprise customers ask for service credits plus a capped right to terminate after repeated service failures.

Your contract should state exactly what happens when an SLA is missed.

Vague language about using “commercially reasonable efforts” can create disagreement. The parties may have very different views about what qualifies as a failure and what remedy should follow.

Your SLA should define the measurement period, applicable exclusions, remedy, and process for making a claim.

Investors Will Look at the Same Problem

Your SLA is not only a customer issue.

During fundraising diligence, investors and their counsel may review customer contracts and compare the terms across your customer base.

They can look at uptime commitments, liability caps, termination rights, and other service obligations.

Inconsistent terms can create concern.

Imagine that one enterprise customer receives a 99.9% uptime commitment, another receives a different service level, and a third has negotiated special termination rights. When those agreements are reviewed together, the issue becomes an operational risk rather than an isolated contract point.

Investors want to know whether your company has a repeatable contracting process.

Clean and consistent customer agreements make that review easier.

Assignment Clauses Matter More Than You Think

There is another issue founders often overlook.

What happens to your customer contracts if the company is acquired?

Some agreements require customer consent before the contract can be assigned to a buyer. If the agreement does not address the issue clearly, or if every customer has a different provision, an acquisition can become slower and more complicated.

You may have a buyer ready to close while your team is still trying to obtain customer consents.

That is not the time to find out that important contracts have inconsistent assignment provisions.

Contract terms should account for the possibility of a future transaction.

How to Close the Gap Between What You Promise and What You Can Deliver

Start by comparing your customer facing SLA terms with the SLAs in your own vendor agreements.

Review them section by section.

Look for every customer promise that is stricter than the guarantee you receive from your infrastructure provider.

Then decide how to address each gap.

You could negotiate a more realistic customer SLA. You could also add a clear carve out for outages caused by a third party provider outside your control, where appropriate.

The important point is to conduct this review across your customer base rather than waiting for an outage or customer complaint.

A consistent process is easier to manage and gives your sales and legal teams a clear framework for future negotiations.

Common Founder Mistakes

• Copying SLA language from a vendor’s contract: Founders sometimes take uptime and service credit provisions from their cloud provider and use them in customer agreements. This can create obligations that are stricter than the protection the company receives from its own provider.
• Allowing every customer to negotiate different SLA terms: Sales teams may accept different uptime commitments or remedies to close enterprise deals. Over time, the company ends up with a patchwork of obligations that is harder to manage and can concern investors during diligence.
• Failing to define what counts as an outage: An SLA without clear measurement periods, exclusions, and claim deadlines can create arguments after an outage occurs. Those disputes are harder to manage when the customer relationship is already under pressure.

10-Minute SLA Self-Check

• Does your customer SLA match what your own infrastructure vendors can actually guarantee?
• Do you understand how a service credit differs from compensation for a customer’s losses?
• Are your SLA terms consistent across your customer contracts?
• Does the agreement clearly explain what qualifies as an outage and how the customer must make a claim?
• Have you addressed what happens to the contract if your company is acquired?

If you cannot answer yes to all questions, review the SLA before signing the contract.

Bottom Line

Your SLA and remedy provisions are real business promises.

They should not be treated as standard contract language that gets copied from one agreement to another without review.

Your infrastructure provider may give you limited service credits while excluding liability for lost revenue and other losses. If your customer contract promises more, your company may carry the gap.

Review your vendor and customer terms together. Set realistic service commitments. Define outages and remedies clearly. Keep customer terms consistent where possible. Also consider how assignment provisions will affect a future acquisition.

A cloud provider outage may be outside your control. The contract you sign with your customer is not.

Ready to Get Your Contract Language Right?

Schedule a free 30-minute call with our team to discuss your customer agreements, SLA terms, and concerns.

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