Many users fall victim to this fallacy. By itself, an SLA can't directly produce any change in the level of service delivered. Also, as a result of the communications that take place during the course of negotiating an SLA, the service provider may better understand which aspects of the service are most important to the user. Second, along with the establishment of an SLA, the service provider should implement a program of service-level management. It's the service-level management program that will actually result in higher levels of service.
Penalty clauses can serve two purposes.
The first is to represent a potential source of pain that acts as an incentive for the service provider to try harder to meet the service-level guarantees. In truth, it's very difficult to negotiate penalty clauses that will really meet either of these objectives, and service providers are resistant to putting such significant guarantees in the SLAs. SLAs are not necessary when outsourcing IT functions. At best, this level of trust can be characterized as naive. From a harsher perspective, this could be considered gross negligence on the part of the managers who negotiated the contract and those who approved it.