Five clauses quietly move money in GPU-capacity agreements

A GPU-capacity agreement is a contract to reserve or supply GPU compute at scale—through colocation, bare-metal rental, or compute-as-a-service—usually billed as monthly recurring charges over a fixed term.

GPU compute is capital-intensive in unprecedented ways. A model company that raises $20 million USD can commit the entire raise to a single month of GPU costs, whereas traditional software startups spread that spend over years. This asymmetry creates exposure on both sides: buyers face performance risks, while sellers face payment risks. The five clauses below represent where that exposure concentrates.

Clause 1: Service credits as your "sole and exclusive remedy"

Most GPU-capacity contracts limit downtime recovery to service credits as the "sole and exclusive remedy"—meaning even catastrophic failures yield only a small percentage credit rather than meaningful compensation. The true buyer protection is a chronic-outage exit clause, not a larger credit.

Standard credit ladders carry several limitations:

  • Credits typically issue as future account credit rather than cash
  • They expire if unused within roughly 90 days
  • Short claim windows apply (some providers require written notice within 24 hours or forfeit the credit)
  • Uptime measurement varies by layer—node-level guarantees near 99% versus rack-level figures closer to 95%

Published SLA Credit Ladders (Selected Providers)

Provider Stated SLA Credit Tiers Credit Form
AWS EC2 99.5% 10% / 30% / 100% Future account credit
Oracle OCI 99.99% 10% / 25% / 100% Future account credit
DigitalOcean 99% 10% / 25% / 50% Future account credit

The quiet cost lies in the "sole and exclusive remedy" language itself—it converts every failure into a capped credit and eliminates alternative paths, including exit rights. Research suggests downtime costs roughly "$23,750 USD per minute for a large organization," a figure no standard credit approaches. Current GPU-cloud SLAs rarely include termination rights for chronic or repeated failures.

Buyer negotiation strategy: Carve a chronic-outage termination right outside the sole-remedy clause. Define persistent breach as a set number of failed SLA months within a rolling window or a hard availability floor measured quarterly. Include refunds of prepaid and unused fees upon exit.

Clause 2: Who actually owns the GPUs?

Before signing, confirm the provider owns the GPUs free and clear. Many do not—hardware frequently serves as collateral for lender financing, and provider default can give a lender's repossession rights priority over your access to the cluster you're paying for.

In August 2023, CoreWeave borrowed $2.3 billion USD using Nvidia H100s as collateral in a facility led by Magnetar Capital and Blackstone. When hardware secures a loan, operators do not hold it free and clear: default on the debt places the secured lender—not the customer—in control of equipment mid-term.

Due diligence checklist (both sides of the border):

  • Lien search: Run a UCC-1 search (US) or PPSA search (Canada) against the operator and specific equipment to identify existing security interests
  • Title representation: Require the provider to represent ownership and warrant no undisclosed encumbrances, with notice obligations if circumstances change
  • Lender non-disturbance: Obtain recognition or non-disturbance agreements from any secured lender so foreclosure doesn't interrupt your access
  • Step-in and continuity rights: Secure step-in rights to the underlying colocation lease plus relocation or continued-use rights if the provider fails

This clause escapes most buyers' attention yet poses the greatest risk—especially when the provider is already in trouble.

Clause 3: Who underwrites the power-price risk?

The clause that moves the most money in power-heavy deals determines who absorbs rising electricity costs. An uncapped pass-through leaves the buyer with an open-ended bill; a fixed price with no escalator leaves the seller with the risk. Neither approach is inherently wrong—but the contract must explicitly identify who underwrites power.

Colocation and large compute deals increasingly price on power (dollars per kilowatt). Underlying electricity supply may be a pass-through, a fixed tariff, or a power purchase agreement. Fuel and electricity cost-escalation clauses are standard contract language, meaning the mechanism is negotiable.

Verification and negotiation points (both sides):

  • Review the underlying supply contract: Confirm its term, pricing certainty, and whether the provider has locked power for your full deal term—not just this year
  • Assign power-cost risk explicitly: Negotiate a cap or collar on escalation, tie any escalator to a named public index rather than provider discretion, and require transparency
  • Monitor power measurement: In colocation specifically, billing on total facility load versus IT load produces materially different figures

Clause 4: What happens when the buyer can't keep paying?

The provider's largest exposure is a buyer who stops paying the monthly recurring charge. If the non-payment exit is slow or soft, the provider carries idle, financed hardware while an insolvent customer occupies reserved capacity. Take-or-pay language secures revenue on paper—but against an insolvent buyer, it becomes only an unsecured claim.

Capital intensity makes default a real scenario: a buyer can deplete runway in months, not years. Reported offtake deals heavily favor providers on paper—a breaching customer typically owes the full remaining balance. Yet paper protection means little if the counterparty fails.

Provider-side protections:

  • Clean default exit: Prompt suspension and termination on non-payment with a short, defined cure period; acceleration of the remaining term; and no-offset language preventing service disputes from blocking payment
  • Repossession and access mechanics: Clear rights to deny access, reclaim capacity, and re-let it, preventing provider freeze while costs accumulate
  • Force majeure with explicit payment treatment: Payment treatment during outages varies—from "payments delayed but not excused" to customer exit rights after 30 consecutive days

The strongest protection flows upstream: verify the buyer's committed funds before signing (addressed in Clause 5). Buyers should mirror this clause with a chronic-outage exit.

Clause 5: Payment security up front

Up-front payment security is where counterparty risk gets priced. Providers protect themselves with deposits, prepayment, letters of credit, and parent guarantees; buyers protect themselves by refusing payment for capacity that hasn't passed acceptance testing.

Reported deals show substantial up-front security: roughly 30% of contract value paid before GPU delivery begins, and nine-figure letters of credit posted as customer security on top of monthly advance payments. Leveraged providers negotiate parent-company guarantees, standby letters of credit, and step-in rights to provider leases on default.

Negotiation points:

  • Seller-side security: Deposits or prepayment, a standby letter of credit or parent/sponsor guarantee sized to exposure, and security that survives buyer financial distress
  • Buyer-side protection: Tie payment obligations to acceptance and burn-in gates, so the meter starts when the cluster passes node and fabric checks—not on a paper delivery date. Scope force majeure so prepayments don't continue through outages

The Five Clauses at a Glance

Clause Typically Favors Key Negotiation Points
Service credits as sole remedy Seller Chronic-outage termination right and unused-fee refunds
GPU ownership / security interests Seller and its lender Lien search, title representation, lender non-disturbance, step-in rights
Power-price risk Whoever drafted it Cap or collar, named index, transparent power billing
Buyer-default exit Seller on paper; no one in insolvency Clean suspension/termination, acceleration, repossession mechanics
Payment security up front Seller Deposits, letters of credit, guarantees—versus acceptance/burn-in gates for buyers

Key Takeaways

  • Service credits represent a cap, not a cure—the "sole and exclusive remedy" clause carries the quiet cost; the fix is a chronic-outage exit, not a larger credit
  • Confirm provider GPU ownership through lien searches—financed hardware may carry lender security interests that outrank customer access
  • Explicitly name who underwrites power costs—uncapped pass-throughs and fixed prices without escalators both move significant money
  • Providers need clean default exits—take-or-pay clauses only work if the buyer remains solvent; pair them with fast termination and up-front security
  • Payment security flows both directions—providers secure revenue through deposits and letters of credit; buyers secure value through acceptance and burn-in gates

Frequently Asked Questions

What is a GPU-capacity agreement? A contract to reserve or supply GPU compute at scale—through colocation, bare-metal rental, or compute-as-a-service—typically billed as monthly recurring charges over a fixed term.

Are service credits the only downtime remedy? In most GPU-capacity contracts, yes. Service credits typically cap recovery at a small share of monthly fees, often paid as future credit rather than cash. The negotiable protection is a chronic-outage termination right carved outside that clause.

How do I confirm GPU provider ownership? Run a UCC-1 lien search (US) or PPSA search (Canada) against the operator and equipment; require title and no-undisclosed-encumbrances representations; and negotiate lender non-disturbance agreements plus step-in rights to prevent mid-term access interruption.

Who pays when electricity prices rise? It depends on the pricing clause. Uncapped pass-throughs place rising power costs on buyers; fixed prices without escalators place risk on sellers. Verify the underlying electricity supply contract, then negotiate a cap, defined index, and transparent power billing.

What protects a compute provider if the customer stops paying? A clean default exit: prompt suspension and termination on non-payment with a short cure period, remaining-term acceleration, no-offset language, and clear repossession or denial-of-access mechanics—backed by up-front payment security and pre-signing diligence on buyer committed funds.

This article is general information, not legal advice. For specific guidance, consult a qualified attorney.