As demand for outsourcing continues, it is crucial that there is no confusion about what is expected of suppliers - and what users' responsibilities are. Mistakes in drafting service level agreements can be expensive for both user and supplier, affecting the project and threatening profitability. As a rule of thumb, SLAs should cover seven areas:
Clearly define requirements
Conduct a thorough audit of existing services. IT may have been provided by the user's in-house department, so things such as service levels, availability and performance may not have been formally measured in any detail. However, if you have this information to hand, it is easier for both user and supplier to explain their requirements and expectations.
Key performance indicators
Key performance indicators are chosen to cover the level of service provided, such as the availability of a network. Choosing KPIs to cover every single area could mean that measuring and monitoring them becomes unwieldy and not particularly useful. Care is required when choosing KPIs and setting targets.
The supplier may give the user credits (reimburse them with set amounts) if it fails to meet KPIs. If KPI targets and credits are set too high, it could make the deal unattractive for the supplier and act as a disincentive. Credits cannot totally compensate for poor service and so other plans should be put in place to resolve problems if they occur, rather than relying solely on credits.
Not just IT
Some users may believe that the SLA for IT outsourcing projects should be negotiated by the IT department alone, but this could have unwanted effects for other departments and the organisation as a whole. All relevant people in a business should have an input into the SLA - including people from the finance, legal and other departments affected by the agreement.
SLAs often go wrong because the parties do not talk about problems they are encountering, or only talk once things have deteriorated too far.
An SLA should try to cater for the resolution of problems or potential problems at an early stage. It is important to have formal procedures to escalate problems within set periods to middle management and then to senior management if they cannot be resolved by the staff working on the project on a day-to day-basis.
Mediation, arbitration or going to court are other possibilities if problems still cannot be resolved.
Consider external advice
SLAs are often produced by a user and supplier without obtaining external advice. External advisers who regularly deal with SLAs can help to ensure that the agreement covers all the relevant issues. They can be particularly useful if any party is unfamiliar with the issues which arise in SLAs, if the SLA is high-value, or if the services provided under the SLA are critical to the business.
Ease of use
If SLAs are too detailed, too complex or too long, it will be difficult for staff to understand and use them on a regular basis. If staff do not use the agreements, it could lead to problems or disputes in the future.
Jimmy Desai is a partner at law firm Tarlo Lyons