SLA: what the purpose of Service Level Agreements in outsourcing?

The Service Level Agreement (SLA) is an agreement between a provider and an end-user. This agreement establishes, in very clear terms, and defines the level of service that the end-user expects from the service provider. For this purpose, it contains the measurement parameters of this service and the solutions or penalties, if any, if the agreed service levels are not respected. It is a crucial element for the company that decides to outsource one of its services to an external provider.

Application of SLA

Let us consider, as an example, a telecom provider, whose contract promises a network available at 99 %. In case of breach of this promise, the customer will be entitled to deduct the downtime from his payment, on a pro rata basis.

The use of SLA

Service level agreements are an integral part of a consolidated outsourcing contract. They provide information on all contracted services and on the agreed expected reliability and they clearly set out the parameters, responsibilities and expectations so that in the event of a problem with the service, no party can plead ignorance. Clearly, the SLA ensures that both parties have the same understanding of the requirements.

Who provides SLA?

Service providers generally have standardised service contracts, which can be customised according to the service chosen by the customer. However, in the event of a modification, the document should be notified by a legal department, for example, that of the client’s company.

It is also convenient for the customer to amend the service contract by indicating the level of service expected. This will allow the service provider to adapt its tariff and also the human resources made available.

Contents of the SLA

First of all, the service level agreement includes two key components:

Management: the definition of measurement standards and methods, the reporting process, content and frequency, the dispute resolution process, an indemnification clause protecting the client from third party disputes resulting from service level violations and a mechanism to update the agreement if and when required.

The service : the specificities of the services provided, the exclusions in case of doubt, the conditions of availability of the service, the time limit for each level of service (peak hours, off-peak hours, etc.), the responsibilities of each party, the climbing procedures and the compromises on costs and services.

The following elements can be added:

• A description of the services to be provided,
• Expected levels of service,
• Service metrics,
• The duties and responsibilities of each party,
• Applicable remedies or sanctions,
• Addition of services protocol

The importance of metrics

The metrics allow the right attitude to be adopted in case of failure on the part of one of the parties. An example of failure would be if the customer has not provided information in time and that this affects the quality of the service provided by the provider.

In such a case, the customer may not claim compensation from the provider!

The importance of the indemnity clause

The indemnity clause is essential. Through the latter, the service provider undertakes to indemnify his client in the event of a breach of the guaranteed services.

As a client, be sure to ask the legal department of your company, or an external one, to include this provision, negotiable if requested by the provider, within reasonable limits.

Continuity of SLA in case of changes related to the provider

It is important to note that in the event of major changes related to the provider, the SLA may, in turn, be modified. However, this is not common practice. In such a case, the client may have to negotiate a new contract.

Verification of service levels

Providers offer their clients to monitor the progress of service levels through statistics, which are generally available online.

With regards to the methodology used by the provider, it can be discussed with the client in order to find a refined solution that suits both parties.

Setting up the metrics

To set up metrics, start by determining what behaviour you expect from the client (as a provider) and the provider (as a client).

Among the metrics to consider, everything will depend on the customer’s activity, his expectations and the provider’s ability to provide relevant reports. The goal is for both parties to work together seamlessly and communicate effectively and productively in times of crisis.

These metrics must therefore be easy to collect while being meaningful enough to expand the provider’s business and achieve the client’s goals. To do this, choose items that can be collected automatically and quickly. It is not necessary to implement a considerable quantity of metrics: the provider must be able to advise the client on those that will allow him to have a visibility on his activity, without overloading him with data.

Among the metrics usually considered are:

• Availability of service (time slot),
• Default rates (production failures, missed deadlines, etc.),
• Technical quality (defects in delivered products)
• Security (data security protection)
• Business results (key performance indicators)

The SLA requires time and energy, especially from the customer’s side. However, by choosing an experienced provider, the company secures its outsourcing thanks to clearly established conditions, minimises losses and damages in case of failure by the provider while benefiting from a satisfactory performance.

As its name indicates, the service level agreement consists of an agreement between two companies each specialising in a core business. This contract, which is moral, financial and legal, contributes to the smooth running and development of businesses.