SLA Penalties that Hurt

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    Today's issue of NW on Outsourcing provides a quick excellent explanation about why SLAs so often fail the customer. in "SLA penalties for outsourcers: What are their pain points?" columnist Rick Sturm explains that the most common clause he sees in contracts is one that stipulates that the vendor will issue a credit for that month's fee if it fails to deliver the levels of service promised. As he points out:

    This seems a bit like getting a bad haircut and when you complain, you're told that you don't have to pay for it. Even if it's free, you still have to live with a bad haircut. Likewise, even if you receive a credit for the month's charges, you still have received sub-standard service. The impact on the business of that poor service cannot begin to be offset by the monthly service fee.

    One of his suggestions:

    The challenge is to define a sufficiently onerous penalty to the service provider, one that would encourage them to fulfill their obligations. This requires creativity and some knowledge of the outsourcer's culture, priorities, pain points, etc. What constitutes an effective penalty will vary from one contract to another. Often a penalty that somehow personally involves an executive from the outsourcer's organization (e.g., a personal visit to the customer's site by the CEO) can be effective.

    Mr. Sturm has a new edition of one of his books out: SLM Solutions: A Buyer's Guide. I think I'll get a copy and see what other tidbits I can glean.

    In the meantime, you'll probably be able to find Mr. Sturn's column here shortly.

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