When buyers picture an audit settlement they tend to imagine a single calculation: count the deployments, subtract the entitlements, multiply by a price, and the result is the bill. That picture is incomplete. The technical count sets the floor, but the figure that actually settles sits inside a range, and the range can be surprisingly wide. The same underlying gap can close near the bottom of that range or near the top, and one of the strongest forces deciding which way it moves is how the audited party conducted itself. Good faith is not a soft virtue here. It is a commercial lever with a direct effect on the penalty, and it is one of the few levers a buyer controls from the first day. This article explains what good faith means in audit terms, why it moves the number, and how to build it before it is needed.
For the full method of defending an audit from the first letter through to settlement, the Microsoft Audit Survival Guide sets out the landscape. Here we focus on the single lever of conduct and the evidence that proves it.
Why a finding is a range, not a fixed number
The reason good faith can move a finding at all is that neither track produces a single mechanical figure. On the end customer side, the auditor produces an Effective License Position, the reconciliation of what is deployed against what is entitled. That position is not the final sentence. It is the opening of a negotiation, and many of its inputs are judgment calls: how a product is counted, whether a given deployment was truly in use, how an ambiguous entitlement is read. On the hoster side, a SPLA finding splits into two parts. Back fees at the price file rate are fixed and not negotiable. The penalty uplift, which ranges from 25 to 125 percent depending on the severity, the duration, and the nature of the under reporting, is negotiable, and that band is enormous. A finding settled at a 25 percent uplift and the same finding settled at 125 percent differ by a factor that dwarfs most technical corrections. The uplift band is precisely where conduct does its work.
Back fees are fixed. The uplift, from 25 to 125 percent, is the negotiable band, and conduct is one of the strongest forces deciding where inside it you land.
What good faith actually means in an audit
Good faith in this context is not an attitude or a tone of voice. It is a pattern of conduct backed by evidence, and it has a few concrete components. The first is that the gap, where one exists, looks like an honest error rather than a deliberate avoidance. A licensing shortfall that arose from a documented misreading of complex terms reads very differently from one that arose from a known position that was quietly left uncorrected. The second is cooperation: responding to requests in full and on time, providing the records asked for, and not obstructing the process. The third is that the records themselves show ongoing diligence, that the organization was trying to get it right, kept its own house in order, and corrected mistakes when it found them. Good faith is the difference between an auditor who concludes you had a control problem and one who concludes you were hiding something. The first invites the lower end of the band. The second pushes toward the top.
Why the other side rewards it
It can seem strange that demonstrating good faith lowers a bill rather than simply confirming the amount owed. The reason is practical, not sentimental. The penalty uplift and the negotiated portions of an Effective License Position exist partly to penalize and deter bad conduct. Where there is no bad conduct to deter, the justification for the high end of the band weakens. An auditor and the account behind them also weigh the cost and risk of pushing hard. A cooperative, well documented counterpart who is clearly negotiating in good faith is one with whom a reasonable settlement can be reached quickly and cleanly. An obstructive counterpart with poor records and a pattern that looks like avoidance is one the other side feels justified in pressing, because the high end of the band is defensible and the relationship has little to protect. Good faith changes the cost benefit calculation on the other side of the table, and that is why it moves the number.
A worked illustration
Consider a single hoster under reporting position taken to settlement two ways. The figures are indicative and used only to show how conduct moves the uplift on an identical underlying gap.
| Element | Poor conduct path | Good faith path |
|---|---|---|
| Back fees at price file rate | 100 | 100 |
| Penalty uplift applied | 125 percent | 30 percent |
| Uplift amount | 125 | 30 |
| Total exposure | 225 | 130 |
The back fees are identical because they are fixed by the price file. The only thing that changed between the two columns is the uplift, and the uplift moved because one path showed cooperation, clean records, and an honest error while the other showed obstruction and a pattern that looked deliberate. The same underlying shortfall settled for nearly half as much. That gap is the commercial value of good faith, and it is created before the technical count is even finalized.
Good faith on the end customer side
For end customers the mechanics differ but the principle holds. The 5 percent clause is unforgiving in structure: if unlicensed use reaches 5 percent or more of total use, the customer reimburses Microsoft's verification costs and acquires licenses at 125 percent of the current price. That clause is fixed once the threshold is crossed. But almost everything feeding into whether the threshold is crossed, and into the broader commercial settlement that follows, runs through judgment and negotiation. A customer who has kept orderly records, who can show that deployments were tracked and entitlements managed, and who engages the process professionally is in a far stronger position to challenge counts, surface overlooked entitlements, and argue ambiguous items down. A customer whose records are chaotic and whose responses are evasive hands the auditor every benefit of the doubt. Good faith here buys credibility, and credibility is what lets you contest the parts of the Effective License Position that are genuinely contestable.
The line between good faith and weakness
There is a real risk of misreading this. Good faith is not capitulation, and it does not mean accepting the opening position, volunteering more than is asked, or treating the auditor as a partner. The auditor and the account behind them are not neutral. The Effective License Position arrives as an opening, not a verdict, and a SPLA finding arrives with the uplift set high precisely so it can be negotiated down. Good faith and firm defense coexist. You cooperate fully on what is properly requested, you keep your records impeccable, and you conduct yourself professionally, and at the same time you challenge every count that is wrong, surface every entitlement that was missed, and refuse to accept a number simply because it was presented. The error is to confuse cooperation with surrender. The strongest position is the cooperative, well documented party who is also a disciplined and adversarial negotiator on the substance.
- Cooperate fully on legitimate requests, and document that you did
- Keep records orderly enough that diligence is self evident
- Challenge every count and surface every entitlement on the substance
- Never volunteer scope or data beyond what is properly requested
- Treat the opening position as an opening, never as a verdict
How to build good faith before you need it
The decisive feature of good faith is that it cannot be manufactured once an audit letter arrives. The records either exist or they do not. The history of diligence is either there or it is not. This is why the work belongs to the period before any audit, and why audit readiness is itself a form of penalty mitigation. A buyer side defense builds the evidence of good faith deliberately rather than hoping it can be assembled under pressure.
Where this leaves you
A finding is a range, and good faith is one of the few levers that moves you toward the bottom of it. It works because it removes the justification for the high end of the penalty band and changes the cost benefit calculation on the other side of the table. It is built from records and conduct, not from words, and it cannot be created after the letter arrives. The buyers who settle for the least are almost always the ones who were diligent before they were ever audited and who then negotiated the substance hard while conducting the process cleanly. The ones who pay the most are those whose records told a story of avoidance, whatever the truth was, and who handed the auditor every reason to apply the top of the band.
If you are in an audit now, the evidence of good faith you already hold is an asset that should be put to work deliberately, and the way you conduct the process from here still moves the number. Book a Strategy Call to assess your records, frame your conduct, and negotiate the finding down from a position of credibility.
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