Contract LawOutsourcing & Projects

Service Levels: Part 2 – Drafting Service Levels / SLAs Effectively

Drafting Service Levels That Work

Drafting service levels and service level agreements (SLAs) that are appropriate, and managing the service levels correctly, provides a number of benefits for both parties to a commercial IT contract or outsourcing contract.

As discussed in my previous article, service levels provide a customer with a way to measure the success of the delivery of the services, and allow the supplier to address service problems more efficiently and assist with understanding the cost of downtime in the customer’s environment. However, if both parties ignore the service levels because they are too complex or expensive to measure this poses significant risk for both parties.

Risk Of Not Having An Effective Service Level Regime

One of the major drafting service levels and including in the contract is that they are discrete and measurable. If the parties decide not to measure and report on service level performance, this has the negative consequence of forcing the supplier and the customer into a reactive stance. In other words, without service levels to accurately measure the supplier’s performance it is like that many of the customer’s end users will call the service desk when the service is not meeting their requirements but very few will have the time or inclination to praise a superior level of performance.

Mistakes To Avoid When Drafting Service Levels

When drafting a service level regime in a commercial IT contract or an outsourcing contract it is easy for customers to be take what they believe is the most beneficial approach for their business by rigorously trying to measure and report on every single contractual obligation. However, a non-targeted approach to service level regimes has a number of drawbacks:

  • It can frustrate the relationship between the parties and make the service level regime too onerous to manage.
  • Including all minor service failures can actually trivialise the overall service regime, which makes it less effective as a contractual management tool.
  • A scattered approach may not always provide adequate or useful information that the parties could otherwise use to plan the scope of future services.
  • If the parties’ primary focus relates to service level failures this can create an air of negativity in connection with the contractual relationship and can also mean that governance meetings turn argumentative and are not constructive.
  • Perhaps most importantly from a commercial perspective, service level regimes require significant resources to operate. A non-targetted service level regime can be so onerous and expensive to operate that customer in practice only utilises it when more serious breaches occur. This means that contract management is inconsistent and can lead to the supplier claiming that the customer has waived the entire service level regime by its conduct.

Planning Service Levels: Pre-requisites

An effective service level regime requires careful planning before the parties start to draft it. Ideally the service level regime will be tailored to the particular requirements of the contract.

When planning the service level regime customers should consider the following pre-requisites:

  • Because the aim of the service level process is to improve the customer’s business requirements it is preferable for the supplier’s and the customer’s business to have a service-orientated culture.
  • The supplier should understand the business goals and growth of the customer in order to accommodate network upgrades, workload, and budgeting.
  • The vision of both parties should align with business and IT initiatives that the customer is developing.
  • Both the supplier and the customer must be committed to the service level regime process and the contract. Effective service level regimes require significant input and commitment from all individuals involved.

Drafting Service Levels Effectively

Scope

If the scope of the services or project is clear this enables the parties to draft appropriate service levels and service credits/remedies. Service levels normally have a number of components, including the level of support, how it will be measured, the escalation path for service level reconciliation and overall budget concerns. It is usually better to draft the support structure, escalation path, help-desk procedures, measurement and priority definitions in a similar way for each service level to maintain and improve a consistent service culture.

Responsive

To help the customer understand the availability and performance risks that may occur the structure of the service level regime should allow it to respond to the customer’s business needs and goals. For example, it is important that the drafting reflects the cost of downtime for the customer’s service in terms of lost productivity, profits and customer goodwill.

What To Include

Defining the exact service level figures and targets should come last. Primary support service levels should include critical business units and functional group representation, such as networking operations, server operations and application support groups. Different business units within the customer’s organisation will likely have different requirements. However, as far as possible, a service level regime should be drafted in one overall format that accommodates different service levels. This streamlines the actual implementation, management and application of the service level regime and means it is more achievable.

Drafting Service Levels – Example

By way of example, here are some key components to consider when drafting a service level agreement (SLA):

  • Purpose of the service level regime
  • The parties objectives and goals
  • Description of the services and products that the service levels relate to (including services and goods that are not supported)
  • Definitions of severity levels for incidents (for example ‘Severity 1’ – the whole system is down to ‘Severity 4’ – minor non-recurring bugs),
  • A list of service level targets, such as service quality description, how and when the service levels will be measured, network availability and supplier response and restore time in relation to reported service faults
  • Details of the times when the supplier will provide support (for example, 24 hours a day, or only during business hours)
  • Details of the supplier’s problem management process (for example how an end-user can call the help desk, how the supplier will track calls and fault report record keeping)
  • Information about governance and meetings (for example, how the parties will undertake performance reporting and review and any updates to the service level regime)
  • Customer responsibilities

Conclusion

There is no ‘one size fits all’ approach to drafting a service level regime for a commercial IT contract or outsourcing contract. As with all contractual drafting, the parties need to carefully draft the service level section and set it out in a logical and easy to follow manner. A customer should not try to measure every contractual obligation through service levels – this will be too expensive and time-consuming. To start the relationship off on the best footing, both the supplier and the customer should carefully plan the service level regime together and commit to implement the service level regime in its entirety for the duration of the contract term.

 

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One thought on “Service Levels: Part 2 – Drafting Service Levels / SLAs Effectively

  1. Hi Mark – great article. My question is: if you have a well drafted (read iron clad!) service level agreement with defined and certain levels is there any need to include a clause in the body of the main agreement stating that the supplier does not warrant the service will be available 100% of the time? How can there be any uncertainty or implication to the contrary if there is a service level agreement stating the service will be available, say, 99.95 of the time? What’s your view? Is the ‘negative warranty’ necessary? Cheers

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