12  Nature of Deductions

12.1  The Service Provider confirms that it has taken the risk of Deductions in respect of both Service Failures and Unavailability Events into account in agreeing the level of the Annual Payment.  Both parties agree that the Deductions are a reasonable method of price adjustment to reflect poor performance.

12.2  Deductions are a reduction of the amounts payable in respect of the Services and do not include VAT. The Service Provider shall set-off the value of any Deductions against the appropriate invoice in accordance with the provisions of clause 31.