After raising this issue with Microsoft, their backend team concluded the following:

The investigation revealed that on 2026-03-17, there was a transient fault in one backend instance of Azure Resource Manager (ARM) caused failures for any CRUD operations routed to it, while other instances remained unaffected. The issue was detected and resolved automatically after the instance restarted. No configuration changes or deployments triggered the problem, and it was confirmed to be an isolated reliability fault.
To prevent recurrence, the platform team has filed repair items and is working on a fix, aiming for global deployment by May 2026. We apologize for any inconvenience caused.

We are no longer seeing Internal Server Errors being returned from Azure and deployments are succeeding again.

We are observing an elevated number of Internal Service Errors during deployments in Azure, causing them to fail. This impacts Schoolyear AVD-enabled exams.

This problem is caused by an issue in Azure and lies outside of the scope of the Schoolyear service. However, we do notify customers when we observe such problems. For further assistance, please reach out to Microsoft directly.

If your Exam Orchestration Job fails with an "Internal Server Error" we suggest restarting the deployment manually by clicking "Retry" in job's dashboard and waiting a minute before refreshing the page. Contrary to previous incidents, we have noticed that a single-manual retry resolves the issue in some cases.

We will keep monitoring the situation and share any update we have.