I’m going to share two resources that are informative about the use of service level agreements. I’ll cover one today and the other tomorrow.
First, Network World writer Dan Twing covers SLA credits in his latest column, which you should be able to find here shortly. Service credits are what service providers use (in place of cash refunds) to calm an irate client when service levels haven’t been achieved. These credits get applied to the next bill.
According to Mr. Twing, “Most vendors will limit their maximum exposure on SLA credits to 15% or 20% of fees collected. Some will allow up to 100% credit in a given month, but no more than 20% annually.” He says this generally means that poor performance by a provider won’t put it out of business — and that the larger the service provider, the less it puts at risk for poor performance.
His point is that negotiating hard for “all the credits you can [get] in an SLA” isn’t really going to serve your business needs. After all, you either need the service at the levels you’ve pushed for or you don’t. If you don’t need those levels, then you’re gauging the service by the wrong measurements; if you do need those levels, it’s probable that the credits won’t cover the loss to the business that you’re incurring due to inadequate service.
A better approach is to focus your efforts on making sure you have rock-solid termination clauses in the contract that will enable you to terminate the provider for continual poor performance. One tip Mr. Twing offers on the topic of termination: “…Where appropriate, ensure the provider will pay the cost of switching to another provider if the service is not consistently up to the performance standards.”
Sourcingmag.com’s latest case study, “School District Dilemma: When Outsourcing Didn’t Work, It Canceled the Contract,” also touches on the importance of a workable termination clause you can activate in the event that you decide a change is warranted.
