How to avoid wrestling over SLAs

Outsourcers have the odds in their favour, says Ephraim Schwartz

Service-level credits are a sore subject for vendors. Why shouldn't they be? They come right out of profits, after all. But credits should be a sore subject for customers as well, says Steve Martin, a partner at Pace Harmon, an outsourcing advisory firm. "Any company getting a service-level credit is probably in trouble," Martin says. According to Josh Greenbaum, principal at Enterprise Applications Consulting, the fundamental problem of designing an SLA is being able to agree on success metrics — especially how they are measured and who will do the measuring. Without that, both sides will get no further than an argument over whether a credit is due. SLAs remind me a bit of the old, very sad joke with the punch line: "the operation was a success but unfortunately the patient died." So, what you may end up with is a company hitting all the SLA's marks, only to discover that the company's customers are extremely dissatisfied with the service. In other words, the SLA was worthless because it wasn't measuring what it needed to measure. Clearly, there should be some form of penalty for late delivery of a poorly implemented system, but the real questions are: Why was the delivery late, and what caused the delays? Especially if the project is mission-critical — say, changing your entire accounting system. Yes, everyone should understand what the penalties are for failure, but if penalties are what you are counting on to prevent failure, you're in for some bad news. An ironclad prenupt doesn't guarantee a good marriage, Greenbaum says. The obvious truth is that all the service-level credits in the world aren't going to fix the problem. While Martin doesn't advocate eliminating credits, which he calls a euphemism for penalties, he does believe the goal is to get back to steady-state operation rather than pointing fingers and demanding credits. At issue is setting the right milestones, having everyone agree to them, and getting that knowledge dispersed throughout both companies. When writing an RFP or negotiating a contract, you can ask the service provider to tell you the average number of credits it gave out in the past year. But good luck getting any of them to admit it. When negotiating any contractual arrangement, it's good to remember "it's an unequal fight", Greenbaum says. Global service providers have armies of lawyers who can outgun almost anyone, including some of the world's largest corporations. Even Fortune 1000 companies with their own team of negotiators are not as experienced as the giant service providers in negotiating IT contracts. Although I must keep all parties anonymous, I know of one case where, more than five years after the contract was signed, the company wanted to use a new vendor for just one small part of services received, and the service provider pulled — as if out of a hat — a clause in the contract that automatically kicked in a whole new set of higher-tier pricing for all of the services across the board, thus wiping out any savings from the project. Success in outsourcing relationships starts with the contract and has to continue through to monitoring those SLAs, not to be able to say "gotcha" to the other guy when something goes wrong, but to ensure your company gets what it needs to be successful. Frank Hayes returns soon

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