SLA - Look Inside
Content
ARCHITECT
ENGAGE
OPERATE
REGENERATE
SAMPLE
Service Level
Agreements
Module 10 of the outsourcingtoolset
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Module 10 Service Level Agreement
Contents
1
SAMPLE
ABOUT THE OUTSOURCING TOOLSET AND THIS MODULE ...............................1
1.1 THE OUTSOURCING TOOLSET .................................................................................1
1.2 THIS MODULE ........................................................................................................3
2
INTRODUCTION..........................................................................................................4
2.1 PURPOSE ..............................................................................................................4
2.2 TIMING...................................................................................................................4
2.2.1 Point in the Lifecycle ...............................................................................4
2.2.2 Critical Timing to Manage Bargaining Power..........................................7
2.2.3 Critical Timing to Manage the Total Cost of Contract .............................9
2.3 PLANNING AND PREPARATION ...............................................................................11
2.3.1 Prior to this Module ...............................................................................11
2.3.2 Planning the Effort.................................................................................11
3
OVERVIEW ................................................................................................................12
3.1 DECIDING WHETHER TO HAVE A SLA....................................................................12
3.2 THE SLA IN THE SUITE OF GOVERNING DOCUMENTS .............................................13
3.3 KEY COMPONENTS OF THE SLA............................................................................16
4
SECTIONS OF THE SLA ..........................................................................................17
4.1 SECTION 1: CONTEXT ...........................................................................................17
4.2 SECTION 2: SCOPE OVERVIEW .............................................................................18
4.3 SECTION 3: DETAILED SCOPE/SPECIFICATION .......................................................19
4.3.1 Goal of this Section – Minimizing the Expectation Gap ........................19
4.3.2 Practical Advice when Writing this Section ...........................................20
4.4 SECTION 4: REPORTING SPECIFICATION ................................................................22
4.5 SECTION 5: KEY PERFORMANCE INDICATORS (KPIS) .............................................24
4.5.1 Purpose .................................................................................................24
4.5.2 Types of KPIs ........................................................................................25
4.5.3 Precision KPIs .......................................................................................26
4.5.4 Reliability KPIs ......................................................................................27
4.5.5 Speed ....................................................................................................29
4.5.6 Effectiveness KPIs ................................................................................31
4.5.7 Satisfaction KPIs ...................................................................................33
4.5.8 Determining the Detailed KPIs in a Six-Step Process ..........................35
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4.5.9
SAMPLE
Other issues to consider .......................................................................46
4.6 SECTION 6: EFFECT OF KPI PERFORMANCE ..........................................................49
4.6.1 Exploring the basis for KPI schemes - recourse versus rewards .........49
4.6.2 Regular rebate/bonus schemes ............................................................53
4.6.3 Intermittent schemes.............................................................................57
4.7 SECTION 7: THE SLA GLOSSARY ..........................................................................60
5
HELPFUL TIPS AND A CHECKLIST .......................................................................62
5.1 EIGHT TIPS TO MAKE THE DOCUMENT WORK FOR YOU...........................................62
5.2 CHECKLIST FOR YOUR SLA ..................................................................................64
APPENDICES....................................................................................................................65
Appendix A – Example Project Plan ............................................................................A1
Appendix B – Progressive Intervention Forms ...................................................... B1-B4
B1- Example Rectification Notice
B2- Example Corrective Action Request
B3- Example Direction Notice
B4- Example Termination Notice
Appendix C – Example SLA................................................................................. B1-B21
Appendix D – SLA Template................................................................................D1-D20
Figures and Tables
FIGURES
Figure 1: The Outsourcing Lifecycle ....................................................................................... 1
Figure 2: The Basic Composition of Each Module ................................................................. 2
Figure 3: Timing in the Lifecycle ............................................................................................. 5
Figure 4: Bargaining Power and the Lifecycle ........................................................................ 7
Figure 5: Total Cost of Contract Curves ............................................................................... 10
Figure 6: The Governing Documents.................................................................................... 14
Figure 7: Frequency of Use .................................................................................................. 15
Figure 8: Partial Example Responsibility Matrix (1).............................................................. 18
Figure 9: Example Specification (a) - Call logging................................................................ 20
Figure 10: Example Specification (b) - Call logging.............................................................. 21
Figure 11: SLA KPI Types ................................................................................................... 25
Figure 12: Partial Example Responsibility Matrix (2)............................................................ 37
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SAMPLE
Figure 13: KPI thresholds ..................................................................................................... 42
Figure 14: KPI development worksheet................................................................................ 44
Figure 15: Progressive intervention pyramid ........................................................................ 51
Figure 16: Example escalation of at risk amount with intervention ...................................... 55
Figure 17: Example points scheme provision....................................................................... 56
Figure 18: Example extension provision............................................................................... 58
Figure 19: Example step-in provision ................................................................................... 59
Figure 20: Example termination provision ............................................................................ 60
TABLES
Table 1: Module Quick-Reference Table................................................................................ 3
Table 2: Example Reporting Table (1).................................................................................. 23
Table 3: Example Reporting Table (2).................................................................................. 24
Table 4: Example KPI – delivery to specification................................................................. 26
Table 5: Example KPI – compliance with policies ................................................................ 27
Table 6: Example KPI – accuracy of records ....................................................................... 27
Table 7: Example KPI – meeting milestones........................................................................ 28
Table 8: Example KPI – equipment availability .................................................................... 28
Table 9: Example KPI – reliability of equipment at delivery ................................................. 29
Table 10: Example KPI – fault response and resolution ...................................................... 30
Table 11: Example KPI – order and delivery cycle time ....................................................... 31
Table 12: Example KPI – effectiveness of sales function..................................................... 32
Table 13: Example KPI – customer satisfaction ................................................................... 35
Table 14: Steps for developing KPIs .................................................................................... 36
Table 15: Example stakeholders and their expectations ...................................................... 39
Table 16: Example Contract Scorecard metrics ................................................................... 41
Table 17: Example KPIs (partial) - original ........................................................................... 46
Table 18: Example KPIs (partial) - revised ........................................................................... 47
Table 19: Example KPI stratification – standard versus non-standard hours ...................... 48
Table 20: Example write-up of the progressive actions........................................................ 52
Table 21: Example rebate scheme – percent method.......................................................... 54
Table 22: Example rebate escalation scheme...................................................................... 54
Table 23: Points example, telecommunications carrier ........................................................ 55
Table 24: Example Glossary Definitions – excerpts ............................................................. 61
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SAMPLE
1.2 This Module
This module covers the preparation of a Service Level Agreement (SLA). A number of case
vignettes are presented to help clarify the intention of the techniques offered. A simple
generic example of a SLA has been provided in the Appendices.
The tools provided for this module, in addition to this guide, are:
Appendix A – Example Project Plan (Microsoft Project™);
Appendix B – Example remedial action forms (Microsoft Word TM);
Appendix C – Example generic SLA (Microsoft Word TM);
Appendix D – Template SLA (Microsoft Word TM); and
Presentation slides (Microsoft PowerPoint™).
TABLE 1: MODULE QUICK-REFERENCE TABLE
Position in the
Lifecycle
Objective
Processes
Design Phase Building Block 4.
Ensure the parties have a shared understanding of the
work required and accountabilities.
1. Gather the pre-SLA work conducted earlier in the
Outsourcing Lifecycle;
2. Select the right drafting team (to ensure
breadth/depth);
3. Draft the SLA, conducting internal workshops as
appropriate;
4. Review and revise the SLA; and
5. Issue the SLA with the Market Package1 to be bid
upon by the potential providers.
Deliverables
Resources
required
1
Service Level Agreement.
Commitment and allocation of effort from personnel on
the drafting team, evaluation team, and the review
team.
The Market Package is the Request for Proposal and supporting documents sent out to bidders as
part of the competitive tendering process. For further information, refer Module 14 – Going to Market
and the Request for Proposal.
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SAMPLE
The Regenerate Phase is where future options are assessed. In the lifecycle, each phase,
and its building blocks, prepares the way for the following phases and building blocks.
Likewise, the success of each building block depends on the preceding ones, with the last
one paving the way for the next-generation sourcing strategy and its lifecycle. Following this,
the lifecycle can recommence, returning to the Architect Phase and the planning of the nextgeneration deals. Depending on whether the work is to be re-tendered, backsourced
(brought back in-house) or renegotiated with the incumbent provider, the deal will need to be
reconsidered, option by option. Organizations should therefore re-assess their initial
sourcing decisions well before the end of the current contract.
The SLA is prepared by the client organization in the Design Building Block 4, preceding the
selection of the provider, and it should be issued with any competitive tender process to the
prospective bidders. It is sequenced this way because, logically, accepting a bid for an illdefined product is a very unsound practice. SLAs are your organization’s formal “product”
specification documents. The contents of the SLA must be detailed at some point. Leaving it
until later means that the provider has far greater bargaining power and more opportunity to
channel the process, which is rarely in your organization’s best interest.
When the provider drafts the SLA, it rarely represents your organization’s perspective or
expectations, and can look more like a bid than a SLA. Furthermore, the provider’s version
tends to represent the provider’s needs rather than the organization’s expectations. The SLA
is what you are going to get for your money, so do not let other parties decide what that will
be.
2.2.2 Critical Timing to Manage Bargaining Power
The Architect Phase is when your organization is building up to its greatest position of
influence. If you enter the Outsourcing Lifecycle without having built up the best possible
bargaining power prior to Building Block 5 Engage, where you select the provider, you will
not have built your bargaining power to its full potential. Figure 4 shows the how bargaining
power operates.
FIGURE 4: BARGAINING POWER AND THE LIFECYCLE
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2.3 Planning and Preparation
SAMPLE
2.3.1 Prior to this Module
Before beginning a SLA there are a number of preparatory steps that will have taken place if
the Outsourcing Lifecycle has been followed:
Building Block 2 Target
– the seven profiles regarding the scope of work to be outsourced will have been
detailed and provide much of the information required to draft the SLA including the
services and stakeholder profiles.
Building Block 3 Strategize
– the “strategic rules” for the outsourcing initiative will have been articulated,
including, but not limited to, the use of recourse and/or rewards for KPIs (key
performance indicators) and asset retention/sale/transfer; and
– the configuration will have been outlined including the scope, provider, duration,
resource ownership, commercial relationship structures.
2.3.2 Planning the Effort
Your organization’s first SLA is likely to take a few months to prepare; but only if you have
completed the previous steps in the Outsourcing. If these early steps have not been
complete, you will be in a significantly inferior position for drafting the SLA – effectively
beginning with little information. This will at least double the standard drafting time, and the
resultant SLA will typically be of inferior quality. However, an experienced SLA writer can
draft one in only weeks (even days!).
An example project plan has been included in Appendix A. An MS Project™ version has
been included in the module for you to tailor, should you wish to use this in your organization.
The client organization writes the SLA because the initial version should be released with the
Market Package. Having the provider draft the SLA is becoming increasingly rare, as most
clients want to be in control of setting their expectations to ensure their needs are met.
When the provider drafts the SLA, it rarely represents the client organization’s perspective or
expectations, and can look more like a bid than a SLA.
During the bidding process, the provider can suggest modifications, but the contract
documents represent the conditions under which the organization desires to spend its money
- as opposed to the provider’s version that represents the conditions under which the
provider desires to provide the work for the price quoted.
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The key governing documents are
SAMPLE
The Conditions of Contract – the “legals” surrounding the outsourcing initiative;
The Service Level Agreement (SLA) – the definition of successful work including
work statements, KPIs (Key Performance Indicators), reporting, etc.;
The Financial Schedule – the manner in which the work will be billed and payments
made (refer Module 11 – Pricing Options and the Financial Schedule);
The Governance Charter – how the parties will manage the contract (refer Module
12 – Governance Charter); and
The Procedure Manuals – the operating processes of the two parties, as well as the
inter-party procedures.
The following diagram (Figure 6) shows how the SLA fits into the Governing Documents.
FIGURE 6: THE GOVERNING DOCUMENTS
As Figure 6 highlights, the first three documents (above the dotted line) form the crux of the
contract documents. The Conditions of Contract forms the body of the contract and the
SLA, Financial Schedule, and Governance Charter are schedules to the body of the
contract. Of course, there are typically more schedules than just these; however, all
outsourcing deals have these two schedules as a minimum.
Complex deals may have many SLAs, typically under a “Master SLA” with service level
schedules underneath representing each major work area. A complex agreement may also
have many Financial Schedules which can involve a transition price schedule, schedule of
rates (labor), schedule of fees (work activity prices), schedule of equipment prices (if
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4.2 Section 2: Scope Overview
SAMPLE
As the name suggests, the Scope Overview provides a brief description of the work covered
by the SLA. Most importantly, this section includes a summary table clearly identifying which
party is responsible for what. This is known as the Responsibility Matrix.
There have been many long, drawn-out struggles over performance, where responsibilities
were not clearly defined at an early stage. Accordingly, the parties are better served when
they adopt the principle that one or the other party is in charge of each service (or activity),
and that shared responsibility be avoided. This helps prevent doubt as to who is supposed to
do what.
To articulate the span of control of each party, the most efficient technique is to prepare a
Responsibility Matrix, as mentioned above. This sets out, in a very high-level table, all the
major activities under the SLA and the allocated accountability between the parties (and
other third parties, if appropriate). Figure 8 provides a partial example of a responsibility
matrix for a labor contract.
FIGURE 8: PARTIAL EXAMPLE RESPONSIBILITY MATRIX (1)
Function
Services
Contractor
Overall
1 Conduct Management Planning
Management
2 Adhere to the Quality Systems
(Section 2.1)
3 Communicate and liaise with Stakeholders
4 Ensure Customer satisfaction
5 Conduct Audits
6 Provision of Labour, Materials, Equipment, etc.
Service
7 Interface with Client activities
Delivery
8 Manage and report Multiple Visits
Management
9 Provide Route Cause Analysis
(Section 2.2)
10 Use of Client-owned Assets
11 Manage Decommissioned Assets (Graveyard Stock)
Client
12 Dispatch Work
12.1 Normal Hours
12.2 Outside Normal Hours
13 Close-out Jobs
14 Calibrate Equipment
Workforce
15 Ensure Workforce availability
Management
16 Competencies and qualifications
(Section 2.3)
16.1 Determine minimum standards
16.2 Ongoing assessment and training
17 Provide Workforce Locations
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4.5.3 Precision KPIs
SAMPLE
Precision measurements seek to quantify the degree to which the work was performed
accurately and in compliance with the rules set up under the contract.
The first rule might be the specification. Specification-related performance measures
typically begin with an assessment as to whether the work was conducted, or the product
delivered, or the asset built, in accordance with the specification, statement of work, or to a
specified standard. An example of such a compliance KPI is shown in Table 4. This KPI
was set up to ensure that all equipment ordered by the client was delivered as per the
purchase order.
TABLE 4: EXAMPLE KPI – DELIVERY TO SPECIFICATION
Calculation
KPI Minimum
KPI
Standard
Delivery
No delivery
accuracy
errors
Frequency
Source
Formula
Data
Delivery error = any variance not
Monthly
authorized by the Client from the
Purchase Order 3
Service
desk
One KPI often included in contracts that relates to accurate performance is an assessment to
which the work/item meets a specified standard such as that published under the
International Standards Organization (ISO). The ISO has 17,000 standards on a variety of
technical subjects as well as on generic management systems such as quality management
and environmental management.
If you want the provider to follow your specific policies and procedures, you might consider
another common KPI that assesses the degree to which your organization’s policies and
procedures were followed in conducting the work. All of these compliance-orientated KPIs
operate as a pass/ fail KPI, or one scored by your organization.
An example of this type of KPI is shown in Table 5. This KPI was set up to ensure that the
provider at least partially complied with the policies and procedures specified in the contract
and in place within the client.
3
All the KPI examples in this module use terms that have been defined in the glossaries of the various contracts
from which the examples were taken. These contractual defined terms are denoted by the capitalization of the
first letter in each word of the term (in this case, Purchase Order).
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Step 1: Assign party obligations - identify who is accountable for what
SAMPLE
Many organizations end up with meaningless KPIs because the measurements involve
variables outside the provider’s control. Thus, the provider is able to invoke the common
‘uncontrollable events’, or ‘force majeure’, provisions in a contract when performance is
assessed. These provisions release the provider from its obligations if events occurred
outside its control.
As an example of this in action, assume you had set up an IT systems availability
measurement with your IT infrastructure provider. However, your provider is dependent upon
an independent telecommunications provider. If the system goes offline due the fault of the
telecommunications company, and there is a force majeure provision in the contract, your IT
infrastructure provider will ignore that outage for the calculation of their availability KPI since
it was not their fault. Alternatively, let us say the outage was due to an action your
organization was responsible for, say your applications developers brought down the system
while they were making minor changes in code and did not test it properly. Again, this
outage would be ignored for the KPI calculation.
All this is fine if that is what both parties had anticipated and agreed to. If not, you might
believe the provider is playing around with the calculations when, in fact, they are merely
trying to measure only their component. To ensure there are no surprises, the areas of
control of the parties (as well as any other third parties) need to be carefully specified.
To articulate all of this, the most efficient technique is to have the responsibility matrix from
Section 2: Scope Overview already completed. This matrix sets out all the major activities
under the contract and allocates accountability between the parties (and other third parties, if
appropriate). Figure 12 provides a different partial example of a responsibility matrix for a
printing contract than shown in Section 2: Scope Overview.
FIGURE 12: PARTIAL EXAMPLE RESPONSIBILITY MATRIX (2)
Responsibility
Activity
Contractor
Client
1. Order Management (section 3.1)
1.1 Provide online ordering system
1.2Provide customer service support
1.3 Order Stock as required
2. Printing (section 3.2)
2.1 Artwork
2.1.1 Deliver artwork
2.1.2 Code and file artwork
2.1.3 Make changes to artwork as instructed
2.1.4 Maintain offsite backup
2.2 Print new Stock
2.3 Conduct Emergency Print Runs
2.4 Replace Unsatisfactory Stock
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FIGURE 14: KPI DEVELOPMENT WORKSHEET
KPI
Minimum
Standard
Response >95% within 1 hr
time
Target
Formula
100% in
1 hr
Residual within 3
hrs
The only KPI specification most contracts have
SAMPLE
Source Data
Responses w/in 1 hr
# calls
Responses > 3 hr
# calls
- Response log
- Call log
The area under most dispute, if left unspecified
As shown in Figure 14, most contracts stop at only specifying the KPIs. However, it is
equally important to specify how the KPIs will be calculated and what the source data to be
used (the source of information that must be used in the calculation) is. Most disputes
regarding KPIs centre on these two last two items. It is not the number that is most argued
about, it is how the party doing the calculation determines it. Leaving such calculations to the
discretion of the other party can produce questionable, if not unreliable, results. Therefore,
the dispute is rarely around whether the provider has achieved the KPIs, just the math used.
The following case highlights just this situation.
Case: KPIs that did not feel right
The provider of a fault desk consistently reported the response times as meeting the
minimum standard, yet the client’s contract manager was being sent an increasing amount of
technician complaints about poor response times. There were just too many complaints for
the service to be reporting such good numbers. He had an analyst obtain the provider’s data
for the most recent month and calculate the response times. It added up.
Still suspicious however, he had an analyst go through his emails and attempt to diagnose
what the problem was. The analyst was able to determine that the complaints tended to
come from two of the fourteen regions. Further investigation of the source data showed that
these regions had not been included in the calculation. When the provider was questioned, it
was discovered that these two regions had not been coded into the response tracking system
due to an ‘oversight’
If the math underpinning the KPI and the source data for the calculations are not specified,
then a provider that self-reports its performance (which is the norm) is allowed discretion as
to how to calculate performance. Not only can the provider make up the math, they also get
to make up which sources of data they want to use. Unsurprisingly, the reported KPI will
show that the KPIs have been met. No provider left with total discretion as to how to report
its performance would do otherwise.
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SAMPLE
If you have had to apply negative incentives for more than three months, your scheme is not
working because the provider’s performance is not improving. Something could be wrong
with the KPIs (they were never realistic in the first place, there is a problem getting objective
measurements, or the provider is not in full control of the variables). Alternatively, something
could be wrong at the provider and diagnostic and treatment of the root cause of
performance failure is required.
To help with the latter, another form of disincentive you may want to consider involves an
increasing level of performance intervention by the client organization for those KPIs that are
not being achieved. Increasingly interventionist actions become useful in contracts where
getting money back is not the answer in the long term, and replacing a non-performing
provider is economically or politically impractical until all other avenues have been
exhausted. In the event of any KPI failures, the pyramid in Figure 15 outlines the progressive
interventions most commonly made available to the client.
FIGURE 15: PROGRESSIVE INTERVENTION PYRAMID
Termination
Level 4
Direction Notice
Level 3
Corrective Action Plan
Level 2
Rectification Notice
Level 1
Number
of KPI
failures
Number of Occurrences of the same
KPI failure in a Rolling 3 Month Period
1
2
3
More
1
Level 1
Level 2
Level 3
Level 4
2
Level 1
Level 2
Level 3
Level 4
3
Level 2
Level 3
Level 4
Level 4
More
Level 3
Level 4
Level 4
Level 4
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SAMPLE
At the day specified in the agreement, the points are tallied, and the amount owing is
calculated. The balance day need not be every month; rather it is more commonly every 3,
6, or 12 months. In this spirit, some organizations elect to allow the provider to ‘claw back’
negative points if subsequent performance is above the minimum standard threshold or
meets the target threshold for a specified period of time, keeping in mind that it is consistent
contract outcomes the rational organization wants, not the cash back.
An example of the provision written for a points scheme is in Figure 17.
FIGURE 17: EXAMPLE POINTS SCHEME PROVISION
1. Application of the Performance Points
1.1
(Calculation) The Client will calculate Performance Points:
a. no less than thirty (30) days after receiving the KPI report from the Contractor basis;
b. using the formulas specified in the KPI Tables; and
c. report the positive, negative and net Performance Points calculated to the
Contractor.
1.2
(Point value) A value of $1,000 for each Performance Point has been set by the parties.
1.3
(Annual tally) Prior to 1 February each year, the Client will present the net Performance
Points for the previous year to the Contractor. At that time, the amounts payable by the
party owing will be agreed.
1.4
(Caps) The Rebates and Bonuses shall be capped per year as follows:
a. the Bonus payable by the Client is capped at $200,000; and
b. the Rebate payable by the Contractor is capped at $400,000.
1.5
(Payment) Payment shall occur as follows:
a. for a Bonus, the Contractor will raise a special February invoice; or
b. for a Rebate, the Client will raise a February credit to be offset against moneys
owed the Contractor in accordance with the offset rights in the Contract.
1.6
(No limitation on other rights) The Rebate does not in any way limit the Client’s rights
in relation to any additional remedial actions and remedy in the Contract.
This avoids the paper war often associated with monthly recourse schemes. In a traditional
arrangement, the provider invoices for the work in a particular month, but the KPI
performance report for that month comes in after the invoice has been raised. After receiving
the KPI report, the client typically then raises an invoice credit based in its determination of
the amounts owing due to failure to meet KPIs. More often than not, the provider does not
agree with the calculation and raises a credit adjustment. This little game can go on every
month, month after month!
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SAMPLE
FIGURE 19: EXAMPLE STEP-IN PROVISION
1
Ability of the Client to Step-In
1.1
(Step-in rights) Without prejudice to any other remedy the Client may have, if the Contractor
fails to meet the KPIs, the Client may, at its discretion, take control of so much of the Services as
is necessary for that function to be performed.
1.2
(Appointment of third party) The Client may obtain services similar to the Services elsewhere
or may make any other arrangements considered necessary by the Client to maintain the
Services, appointing any third party to provide the Services.
1.3
(Good faith) The Client must act in good faith in exercising its rights under this clause and
manage any contract with the third party in good faith.
1.4
(Notice) The Client will give notice to the Contractor as soon as practicable of its intention to
exercise its rights under this clause. This notice must include:
a. the reason for exercising these rights;
b. details of the third party; and
c. description of the intended contract with any third party.
1.5
(Duty to assist) The Contractor must assist the Client and the third party in the exercise of its
step-in rights including:
a. facilitating access to the Contractor’s relevant files and systems;
b. providing access to its Confidential Information, information, data, Contract Material and
records; and
c. making the Workforce available to provide information and assistance;
as required by the Client or nominee.
1.6
(No remuneration) The Contractor is not entitled to receive fees, charges or any remuneration
whatsoever that relate to the services performed by the Client or an third party under this Clause.
1.7
(Liability) Neither the Client nor third party is liable to the Contractor for any act or omission
caused during the period of step-in unless the act or omission is caused by gross negligence.
1.8
(Recovery of amounts) The Client will be entitled to recover from the Contractor the difference
between any amounts paid to a third party and the amount by which the payment of fees or
charges has been reduced. The Client must act reasonably, insofar as the circumstances permit,
in appointing any third party to provide the Services and in agreeing a fee for those services.
1.9
(Cease of step-in) The appointment of the third party will cease when:
a. the Client determines, in its absolute discretion, the Contractor has demonstrated its ability
to meet the KPIs;
b. the Contract is terminated by the Client; or
c. the Term expires by the passing of time.
1.10
(No termination waiver) Nothing in this clause prevents the Client from being entitled to give
notice for termination for cause.
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Termination (full or partial) – at some stage, as a last resort, you may want the right to
terminate for poor performance. This can be the right to terminate the entirety of the
contract (full termination) or the work for which the KPIs are failing (partial termination).
Figure 20 provides you with a simple example. It is worth noting that, in the event of
partial termination, you should always retain the right to escalate to full termination at your
absolute discretion, if you determine that partial termination is not practical.
SAMPLE
FIGURE 20: EXAMPLE TERMINATION PROVISION
9.2 In addition to any other rights it has to terminate this Agreement, the Client may, in its
absolute discretion, terminate this Agreement in whole or in part with respect to any one
or more Services if the provider:
(a) fails to meet at least 3 (three) KPIs, without justification acceptable to the Client, in
any 1 (one) measurement period
(b) fails to meet at least 10 (ten) KPIs, without justification.
These disincentive rights of your organization can be powerful without having to be actually
executed. These deterrents can provide your organization with strong negotiation power
over the provider to put in other resolutions, or to improve the arrangement.
4.7 Section 7: The SLA Glossary
A good SLA is written to ensure that there is minimal opportunity for people to misinterpret it,
and to be easily understood by anyone who reads it. The glossary plays an extremely
important part in achieving this.
The glossary section contains all the reserved words, phrases, and acronyms used in the
SLA. Table 24 shows an excerpt from a SLA glossary as an example.
Without this glossary, both parties will naturally interpret key terminology in a manner that
best suits them. Reaching a common interpretation can be difficult as each party is also
likely to have a reasonable claim supporting their interpretation. The one with the greatest
bargaining power at the time will be the one who wins the argument. This is not the best way
to ensure a successful deal.
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ENGAGE
OPERATE
REGENERATE
SAMPLE
Service Level
Agreements
Module 10 of the outsourcingtoolset
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Module 10 Service Level Agreement
Contents
1
SAMPLE
ABOUT THE OUTSOURCING TOOLSET AND THIS MODULE ...............................1
1.1 THE OUTSOURCING TOOLSET .................................................................................1
1.2 THIS MODULE ........................................................................................................3
2
INTRODUCTION..........................................................................................................4
2.1 PURPOSE ..............................................................................................................4
2.2 TIMING...................................................................................................................4
2.2.1 Point in the Lifecycle ...............................................................................4
2.2.2 Critical Timing to Manage Bargaining Power..........................................7
2.2.3 Critical Timing to Manage the Total Cost of Contract .............................9
2.3 PLANNING AND PREPARATION ...............................................................................11
2.3.1 Prior to this Module ...............................................................................11
2.3.2 Planning the Effort.................................................................................11
3
OVERVIEW ................................................................................................................12
3.1 DECIDING WHETHER TO HAVE A SLA....................................................................12
3.2 THE SLA IN THE SUITE OF GOVERNING DOCUMENTS .............................................13
3.3 KEY COMPONENTS OF THE SLA............................................................................16
4
SECTIONS OF THE SLA ..........................................................................................17
4.1 SECTION 1: CONTEXT ...........................................................................................17
4.2 SECTION 2: SCOPE OVERVIEW .............................................................................18
4.3 SECTION 3: DETAILED SCOPE/SPECIFICATION .......................................................19
4.3.1 Goal of this Section – Minimizing the Expectation Gap ........................19
4.3.2 Practical Advice when Writing this Section ...........................................20
4.4 SECTION 4: REPORTING SPECIFICATION ................................................................22
4.5 SECTION 5: KEY PERFORMANCE INDICATORS (KPIS) .............................................24
4.5.1 Purpose .................................................................................................24
4.5.2 Types of KPIs ........................................................................................25
4.5.3 Precision KPIs .......................................................................................26
4.5.4 Reliability KPIs ......................................................................................27
4.5.5 Speed ....................................................................................................29
4.5.6 Effectiveness KPIs ................................................................................31
4.5.7 Satisfaction KPIs ...................................................................................33
4.5.8 Determining the Detailed KPIs in a Six-Step Process ..........................35
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4.5.9
SAMPLE
Other issues to consider .......................................................................46
4.6 SECTION 6: EFFECT OF KPI PERFORMANCE ..........................................................49
4.6.1 Exploring the basis for KPI schemes - recourse versus rewards .........49
4.6.2 Regular rebate/bonus schemes ............................................................53
4.6.3 Intermittent schemes.............................................................................57
4.7 SECTION 7: THE SLA GLOSSARY ..........................................................................60
5
HELPFUL TIPS AND A CHECKLIST .......................................................................62
5.1 EIGHT TIPS TO MAKE THE DOCUMENT WORK FOR YOU...........................................62
5.2 CHECKLIST FOR YOUR SLA ..................................................................................64
APPENDICES....................................................................................................................65
Appendix A – Example Project Plan ............................................................................A1
Appendix B – Progressive Intervention Forms ...................................................... B1-B4
B1- Example Rectification Notice
B2- Example Corrective Action Request
B3- Example Direction Notice
B4- Example Termination Notice
Appendix C – Example SLA................................................................................. B1-B21
Appendix D – SLA Template................................................................................D1-D20
Figures and Tables
FIGURES
Figure 1: The Outsourcing Lifecycle ....................................................................................... 1
Figure 2: The Basic Composition of Each Module ................................................................. 2
Figure 3: Timing in the Lifecycle ............................................................................................. 5
Figure 4: Bargaining Power and the Lifecycle ........................................................................ 7
Figure 5: Total Cost of Contract Curves ............................................................................... 10
Figure 6: The Governing Documents.................................................................................... 14
Figure 7: Frequency of Use .................................................................................................. 15
Figure 8: Partial Example Responsibility Matrix (1).............................................................. 18
Figure 9: Example Specification (a) - Call logging................................................................ 20
Figure 10: Example Specification (b) - Call logging.............................................................. 21
Figure 11: SLA KPI Types ................................................................................................... 25
Figure 12: Partial Example Responsibility Matrix (2)............................................................ 37
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SAMPLE
Figure 13: KPI thresholds ..................................................................................................... 42
Figure 14: KPI development worksheet................................................................................ 44
Figure 15: Progressive intervention pyramid ........................................................................ 51
Figure 16: Example escalation of at risk amount with intervention ...................................... 55
Figure 17: Example points scheme provision....................................................................... 56
Figure 18: Example extension provision............................................................................... 58
Figure 19: Example step-in provision ................................................................................... 59
Figure 20: Example termination provision ............................................................................ 60
TABLES
Table 1: Module Quick-Reference Table................................................................................ 3
Table 2: Example Reporting Table (1).................................................................................. 23
Table 3: Example Reporting Table (2).................................................................................. 24
Table 4: Example KPI – delivery to specification................................................................. 26
Table 5: Example KPI – compliance with policies ................................................................ 27
Table 6: Example KPI – accuracy of records ....................................................................... 27
Table 7: Example KPI – meeting milestones........................................................................ 28
Table 8: Example KPI – equipment availability .................................................................... 28
Table 9: Example KPI – reliability of equipment at delivery ................................................. 29
Table 10: Example KPI – fault response and resolution ...................................................... 30
Table 11: Example KPI – order and delivery cycle time ....................................................... 31
Table 12: Example KPI – effectiveness of sales function..................................................... 32
Table 13: Example KPI – customer satisfaction ................................................................... 35
Table 14: Steps for developing KPIs .................................................................................... 36
Table 15: Example stakeholders and their expectations ...................................................... 39
Table 16: Example Contract Scorecard metrics ................................................................... 41
Table 17: Example KPIs (partial) - original ........................................................................... 46
Table 18: Example KPIs (partial) - revised ........................................................................... 47
Table 19: Example KPI stratification – standard versus non-standard hours ...................... 48
Table 20: Example write-up of the progressive actions........................................................ 52
Table 21: Example rebate scheme – percent method.......................................................... 54
Table 22: Example rebate escalation scheme...................................................................... 54
Table 23: Points example, telecommunications carrier ........................................................ 55
Table 24: Example Glossary Definitions – excerpts ............................................................. 61
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SAMPLE
1.2 This Module
This module covers the preparation of a Service Level Agreement (SLA). A number of case
vignettes are presented to help clarify the intention of the techniques offered. A simple
generic example of a SLA has been provided in the Appendices.
The tools provided for this module, in addition to this guide, are:
Appendix A – Example Project Plan (Microsoft Project™);
Appendix B – Example remedial action forms (Microsoft Word TM);
Appendix C – Example generic SLA (Microsoft Word TM);
Appendix D – Template SLA (Microsoft Word TM); and
Presentation slides (Microsoft PowerPoint™).
TABLE 1: MODULE QUICK-REFERENCE TABLE
Position in the
Lifecycle
Objective
Processes
Design Phase Building Block 4.
Ensure the parties have a shared understanding of the
work required and accountabilities.
1. Gather the pre-SLA work conducted earlier in the
Outsourcing Lifecycle;
2. Select the right drafting team (to ensure
breadth/depth);
3. Draft the SLA, conducting internal workshops as
appropriate;
4. Review and revise the SLA; and
5. Issue the SLA with the Market Package1 to be bid
upon by the potential providers.
Deliverables
Resources
required
1
Service Level Agreement.
Commitment and allocation of effort from personnel on
the drafting team, evaluation team, and the review
team.
The Market Package is the Request for Proposal and supporting documents sent out to bidders as
part of the competitive tendering process. For further information, refer Module 14 – Going to Market
and the Request for Proposal.
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SAMPLE
The Regenerate Phase is where future options are assessed. In the lifecycle, each phase,
and its building blocks, prepares the way for the following phases and building blocks.
Likewise, the success of each building block depends on the preceding ones, with the last
one paving the way for the next-generation sourcing strategy and its lifecycle. Following this,
the lifecycle can recommence, returning to the Architect Phase and the planning of the nextgeneration deals. Depending on whether the work is to be re-tendered, backsourced
(brought back in-house) or renegotiated with the incumbent provider, the deal will need to be
reconsidered, option by option. Organizations should therefore re-assess their initial
sourcing decisions well before the end of the current contract.
The SLA is prepared by the client organization in the Design Building Block 4, preceding the
selection of the provider, and it should be issued with any competitive tender process to the
prospective bidders. It is sequenced this way because, logically, accepting a bid for an illdefined product is a very unsound practice. SLAs are your organization’s formal “product”
specification documents. The contents of the SLA must be detailed at some point. Leaving it
until later means that the provider has far greater bargaining power and more opportunity to
channel the process, which is rarely in your organization’s best interest.
When the provider drafts the SLA, it rarely represents your organization’s perspective or
expectations, and can look more like a bid than a SLA. Furthermore, the provider’s version
tends to represent the provider’s needs rather than the organization’s expectations. The SLA
is what you are going to get for your money, so do not let other parties decide what that will
be.
2.2.2 Critical Timing to Manage Bargaining Power
The Architect Phase is when your organization is building up to its greatest position of
influence. If you enter the Outsourcing Lifecycle without having built up the best possible
bargaining power prior to Building Block 5 Engage, where you select the provider, you will
not have built your bargaining power to its full potential. Figure 4 shows the how bargaining
power operates.
FIGURE 4: BARGAINING POWER AND THE LIFECYCLE
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2.3 Planning and Preparation
SAMPLE
2.3.1 Prior to this Module
Before beginning a SLA there are a number of preparatory steps that will have taken place if
the Outsourcing Lifecycle has been followed:
Building Block 2 Target
– the seven profiles regarding the scope of work to be outsourced will have been
detailed and provide much of the information required to draft the SLA including the
services and stakeholder profiles.
Building Block 3 Strategize
– the “strategic rules” for the outsourcing initiative will have been articulated,
including, but not limited to, the use of recourse and/or rewards for KPIs (key
performance indicators) and asset retention/sale/transfer; and
– the configuration will have been outlined including the scope, provider, duration,
resource ownership, commercial relationship structures.
2.3.2 Planning the Effort
Your organization’s first SLA is likely to take a few months to prepare; but only if you have
completed the previous steps in the Outsourcing. If these early steps have not been
complete, you will be in a significantly inferior position for drafting the SLA – effectively
beginning with little information. This will at least double the standard drafting time, and the
resultant SLA will typically be of inferior quality. However, an experienced SLA writer can
draft one in only weeks (even days!).
An example project plan has been included in Appendix A. An MS Project™ version has
been included in the module for you to tailor, should you wish to use this in your organization.
The client organization writes the SLA because the initial version should be released with the
Market Package. Having the provider draft the SLA is becoming increasingly rare, as most
clients want to be in control of setting their expectations to ensure their needs are met.
When the provider drafts the SLA, it rarely represents the client organization’s perspective or
expectations, and can look more like a bid than a SLA.
During the bidding process, the provider can suggest modifications, but the contract
documents represent the conditions under which the organization desires to spend its money
- as opposed to the provider’s version that represents the conditions under which the
provider desires to provide the work for the price quoted.
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The key governing documents are
SAMPLE
The Conditions of Contract – the “legals” surrounding the outsourcing initiative;
The Service Level Agreement (SLA) – the definition of successful work including
work statements, KPIs (Key Performance Indicators), reporting, etc.;
The Financial Schedule – the manner in which the work will be billed and payments
made (refer Module 11 – Pricing Options and the Financial Schedule);
The Governance Charter – how the parties will manage the contract (refer Module
12 – Governance Charter); and
The Procedure Manuals – the operating processes of the two parties, as well as the
inter-party procedures.
The following diagram (Figure 6) shows how the SLA fits into the Governing Documents.
FIGURE 6: THE GOVERNING DOCUMENTS
As Figure 6 highlights, the first three documents (above the dotted line) form the crux of the
contract documents. The Conditions of Contract forms the body of the contract and the
SLA, Financial Schedule, and Governance Charter are schedules to the body of the
contract. Of course, there are typically more schedules than just these; however, all
outsourcing deals have these two schedules as a minimum.
Complex deals may have many SLAs, typically under a “Master SLA” with service level
schedules underneath representing each major work area. A complex agreement may also
have many Financial Schedules which can involve a transition price schedule, schedule of
rates (labor), schedule of fees (work activity prices), schedule of equipment prices (if
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4.2 Section 2: Scope Overview
SAMPLE
As the name suggests, the Scope Overview provides a brief description of the work covered
by the SLA. Most importantly, this section includes a summary table clearly identifying which
party is responsible for what. This is known as the Responsibility Matrix.
There have been many long, drawn-out struggles over performance, where responsibilities
were not clearly defined at an early stage. Accordingly, the parties are better served when
they adopt the principle that one or the other party is in charge of each service (or activity),
and that shared responsibility be avoided. This helps prevent doubt as to who is supposed to
do what.
To articulate the span of control of each party, the most efficient technique is to prepare a
Responsibility Matrix, as mentioned above. This sets out, in a very high-level table, all the
major activities under the SLA and the allocated accountability between the parties (and
other third parties, if appropriate). Figure 8 provides a partial example of a responsibility
matrix for a labor contract.
FIGURE 8: PARTIAL EXAMPLE RESPONSIBILITY MATRIX (1)
Function
Services
Contractor
Overall
1 Conduct Management Planning
Management
2 Adhere to the Quality Systems
(Section 2.1)
3 Communicate and liaise with Stakeholders
4 Ensure Customer satisfaction
5 Conduct Audits
6 Provision of Labour, Materials, Equipment, etc.
Service
7 Interface with Client activities
Delivery
8 Manage and report Multiple Visits
Management
9 Provide Route Cause Analysis
(Section 2.2)
10 Use of Client-owned Assets
11 Manage Decommissioned Assets (Graveyard Stock)
Client
12 Dispatch Work
12.1 Normal Hours
12.2 Outside Normal Hours
13 Close-out Jobs
14 Calibrate Equipment
Workforce
15 Ensure Workforce availability
Management
16 Competencies and qualifications
(Section 2.3)
16.1 Determine minimum standards
16.2 Ongoing assessment and training
17 Provide Workforce Locations
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4.5.3 Precision KPIs
SAMPLE
Precision measurements seek to quantify the degree to which the work was performed
accurately and in compliance with the rules set up under the contract.
The first rule might be the specification. Specification-related performance measures
typically begin with an assessment as to whether the work was conducted, or the product
delivered, or the asset built, in accordance with the specification, statement of work, or to a
specified standard. An example of such a compliance KPI is shown in Table 4. This KPI
was set up to ensure that all equipment ordered by the client was delivered as per the
purchase order.
TABLE 4: EXAMPLE KPI – DELIVERY TO SPECIFICATION
Calculation
KPI Minimum
KPI
Standard
Delivery
No delivery
accuracy
errors
Frequency
Source
Formula
Data
Delivery error = any variance not
Monthly
authorized by the Client from the
Purchase Order 3
Service
desk
One KPI often included in contracts that relates to accurate performance is an assessment to
which the work/item meets a specified standard such as that published under the
International Standards Organization (ISO). The ISO has 17,000 standards on a variety of
technical subjects as well as on generic management systems such as quality management
and environmental management.
If you want the provider to follow your specific policies and procedures, you might consider
another common KPI that assesses the degree to which your organization’s policies and
procedures were followed in conducting the work. All of these compliance-orientated KPIs
operate as a pass/ fail KPI, or one scored by your organization.
An example of this type of KPI is shown in Table 5. This KPI was set up to ensure that the
provider at least partially complied with the policies and procedures specified in the contract
and in place within the client.
3
All the KPI examples in this module use terms that have been defined in the glossaries of the various contracts
from which the examples were taken. These contractual defined terms are denoted by the capitalization of the
first letter in each word of the term (in this case, Purchase Order).
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Step 1: Assign party obligations - identify who is accountable for what
SAMPLE
Many organizations end up with meaningless KPIs because the measurements involve
variables outside the provider’s control. Thus, the provider is able to invoke the common
‘uncontrollable events’, or ‘force majeure’, provisions in a contract when performance is
assessed. These provisions release the provider from its obligations if events occurred
outside its control.
As an example of this in action, assume you had set up an IT systems availability
measurement with your IT infrastructure provider. However, your provider is dependent upon
an independent telecommunications provider. If the system goes offline due the fault of the
telecommunications company, and there is a force majeure provision in the contract, your IT
infrastructure provider will ignore that outage for the calculation of their availability KPI since
it was not their fault. Alternatively, let us say the outage was due to an action your
organization was responsible for, say your applications developers brought down the system
while they were making minor changes in code and did not test it properly. Again, this
outage would be ignored for the KPI calculation.
All this is fine if that is what both parties had anticipated and agreed to. If not, you might
believe the provider is playing around with the calculations when, in fact, they are merely
trying to measure only their component. To ensure there are no surprises, the areas of
control of the parties (as well as any other third parties) need to be carefully specified.
To articulate all of this, the most efficient technique is to have the responsibility matrix from
Section 2: Scope Overview already completed. This matrix sets out all the major activities
under the contract and allocates accountability between the parties (and other third parties, if
appropriate). Figure 12 provides a different partial example of a responsibility matrix for a
printing contract than shown in Section 2: Scope Overview.
FIGURE 12: PARTIAL EXAMPLE RESPONSIBILITY MATRIX (2)
Responsibility
Activity
Contractor
Client
1. Order Management (section 3.1)
1.1 Provide online ordering system
1.2Provide customer service support
1.3 Order Stock as required
2. Printing (section 3.2)
2.1 Artwork
2.1.1 Deliver artwork
2.1.2 Code and file artwork
2.1.3 Make changes to artwork as instructed
2.1.4 Maintain offsite backup
2.2 Print new Stock
2.3 Conduct Emergency Print Runs
2.4 Replace Unsatisfactory Stock
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FIGURE 14: KPI DEVELOPMENT WORKSHEET
KPI
Minimum
Standard
Response >95% within 1 hr
time
Target
Formula
100% in
1 hr
Residual within 3
hrs
The only KPI specification most contracts have
SAMPLE
Source Data
Responses w/in 1 hr
# calls
Responses > 3 hr
# calls
- Response log
- Call log
The area under most dispute, if left unspecified
As shown in Figure 14, most contracts stop at only specifying the KPIs. However, it is
equally important to specify how the KPIs will be calculated and what the source data to be
used (the source of information that must be used in the calculation) is. Most disputes
regarding KPIs centre on these two last two items. It is not the number that is most argued
about, it is how the party doing the calculation determines it. Leaving such calculations to the
discretion of the other party can produce questionable, if not unreliable, results. Therefore,
the dispute is rarely around whether the provider has achieved the KPIs, just the math used.
The following case highlights just this situation.
Case: KPIs that did not feel right
The provider of a fault desk consistently reported the response times as meeting the
minimum standard, yet the client’s contract manager was being sent an increasing amount of
technician complaints about poor response times. There were just too many complaints for
the service to be reporting such good numbers. He had an analyst obtain the provider’s data
for the most recent month and calculate the response times. It added up.
Still suspicious however, he had an analyst go through his emails and attempt to diagnose
what the problem was. The analyst was able to determine that the complaints tended to
come from two of the fourteen regions. Further investigation of the source data showed that
these regions had not been included in the calculation. When the provider was questioned, it
was discovered that these two regions had not been coded into the response tracking system
due to an ‘oversight’
If the math underpinning the KPI and the source data for the calculations are not specified,
then a provider that self-reports its performance (which is the norm) is allowed discretion as
to how to calculate performance. Not only can the provider make up the math, they also get
to make up which sources of data they want to use. Unsurprisingly, the reported KPI will
show that the KPIs have been met. No provider left with total discretion as to how to report
its performance would do otherwise.
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If you have had to apply negative incentives for more than three months, your scheme is not
working because the provider’s performance is not improving. Something could be wrong
with the KPIs (they were never realistic in the first place, there is a problem getting objective
measurements, or the provider is not in full control of the variables). Alternatively, something
could be wrong at the provider and diagnostic and treatment of the root cause of
performance failure is required.
To help with the latter, another form of disincentive you may want to consider involves an
increasing level of performance intervention by the client organization for those KPIs that are
not being achieved. Increasingly interventionist actions become useful in contracts where
getting money back is not the answer in the long term, and replacing a non-performing
provider is economically or politically impractical until all other avenues have been
exhausted. In the event of any KPI failures, the pyramid in Figure 15 outlines the progressive
interventions most commonly made available to the client.
FIGURE 15: PROGRESSIVE INTERVENTION PYRAMID
Termination
Level 4
Direction Notice
Level 3
Corrective Action Plan
Level 2
Rectification Notice
Level 1
Number
of KPI
failures
Number of Occurrences of the same
KPI failure in a Rolling 3 Month Period
1
2
3
More
1
Level 1
Level 2
Level 3
Level 4
2
Level 1
Level 2
Level 3
Level 4
3
Level 2
Level 3
Level 4
Level 4
More
Level 3
Level 4
Level 4
Level 4
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SAMPLE
At the day specified in the agreement, the points are tallied, and the amount owing is
calculated. The balance day need not be every month; rather it is more commonly every 3,
6, or 12 months. In this spirit, some organizations elect to allow the provider to ‘claw back’
negative points if subsequent performance is above the minimum standard threshold or
meets the target threshold for a specified period of time, keeping in mind that it is consistent
contract outcomes the rational organization wants, not the cash back.
An example of the provision written for a points scheme is in Figure 17.
FIGURE 17: EXAMPLE POINTS SCHEME PROVISION
1. Application of the Performance Points
1.1
(Calculation) The Client will calculate Performance Points:
a. no less than thirty (30) days after receiving the KPI report from the Contractor basis;
b. using the formulas specified in the KPI Tables; and
c. report the positive, negative and net Performance Points calculated to the
Contractor.
1.2
(Point value) A value of $1,000 for each Performance Point has been set by the parties.
1.3
(Annual tally) Prior to 1 February each year, the Client will present the net Performance
Points for the previous year to the Contractor. At that time, the amounts payable by the
party owing will be agreed.
1.4
(Caps) The Rebates and Bonuses shall be capped per year as follows:
a. the Bonus payable by the Client is capped at $200,000; and
b. the Rebate payable by the Contractor is capped at $400,000.
1.5
(Payment) Payment shall occur as follows:
a. for a Bonus, the Contractor will raise a special February invoice; or
b. for a Rebate, the Client will raise a February credit to be offset against moneys
owed the Contractor in accordance with the offset rights in the Contract.
1.6
(No limitation on other rights) The Rebate does not in any way limit the Client’s rights
in relation to any additional remedial actions and remedy in the Contract.
This avoids the paper war often associated with monthly recourse schemes. In a traditional
arrangement, the provider invoices for the work in a particular month, but the KPI
performance report for that month comes in after the invoice has been raised. After receiving
the KPI report, the client typically then raises an invoice credit based in its determination of
the amounts owing due to failure to meet KPIs. More often than not, the provider does not
agree with the calculation and raises a credit adjustment. This little game can go on every
month, month after month!
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SAMPLE
FIGURE 19: EXAMPLE STEP-IN PROVISION
1
Ability of the Client to Step-In
1.1
(Step-in rights) Without prejudice to any other remedy the Client may have, if the Contractor
fails to meet the KPIs, the Client may, at its discretion, take control of so much of the Services as
is necessary for that function to be performed.
1.2
(Appointment of third party) The Client may obtain services similar to the Services elsewhere
or may make any other arrangements considered necessary by the Client to maintain the
Services, appointing any third party to provide the Services.
1.3
(Good faith) The Client must act in good faith in exercising its rights under this clause and
manage any contract with the third party in good faith.
1.4
(Notice) The Client will give notice to the Contractor as soon as practicable of its intention to
exercise its rights under this clause. This notice must include:
a. the reason for exercising these rights;
b. details of the third party; and
c. description of the intended contract with any third party.
1.5
(Duty to assist) The Contractor must assist the Client and the third party in the exercise of its
step-in rights including:
a. facilitating access to the Contractor’s relevant files and systems;
b. providing access to its Confidential Information, information, data, Contract Material and
records; and
c. making the Workforce available to provide information and assistance;
as required by the Client or nominee.
1.6
(No remuneration) The Contractor is not entitled to receive fees, charges or any remuneration
whatsoever that relate to the services performed by the Client or an third party under this Clause.
1.7
(Liability) Neither the Client nor third party is liable to the Contractor for any act or omission
caused during the period of step-in unless the act or omission is caused by gross negligence.
1.8
(Recovery of amounts) The Client will be entitled to recover from the Contractor the difference
between any amounts paid to a third party and the amount by which the payment of fees or
charges has been reduced. The Client must act reasonably, insofar as the circumstances permit,
in appointing any third party to provide the Services and in agreeing a fee for those services.
1.9
(Cease of step-in) The appointment of the third party will cease when:
a. the Client determines, in its absolute discretion, the Contractor has demonstrated its ability
to meet the KPIs;
b. the Contract is terminated by the Client; or
c. the Term expires by the passing of time.
1.10
(No termination waiver) Nothing in this clause prevents the Client from being entitled to give
notice for termination for cause.
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Module 10 Service Level Agreement
Termination (full or partial) – at some stage, as a last resort, you may want the right to
terminate for poor performance. This can be the right to terminate the entirety of the
contract (full termination) or the work for which the KPIs are failing (partial termination).
Figure 20 provides you with a simple example. It is worth noting that, in the event of
partial termination, you should always retain the right to escalate to full termination at your
absolute discretion, if you determine that partial termination is not practical.
SAMPLE
FIGURE 20: EXAMPLE TERMINATION PROVISION
9.2 In addition to any other rights it has to terminate this Agreement, the Client may, in its
absolute discretion, terminate this Agreement in whole or in part with respect to any one
or more Services if the provider:
(a) fails to meet at least 3 (three) KPIs, without justification acceptable to the Client, in
any 1 (one) measurement period
(b) fails to meet at least 10 (ten) KPIs, without justification.
These disincentive rights of your organization can be powerful without having to be actually
executed. These deterrents can provide your organization with strong negotiation power
over the provider to put in other resolutions, or to improve the arrangement.
4.7 Section 7: The SLA Glossary
A good SLA is written to ensure that there is minimal opportunity for people to misinterpret it,
and to be easily understood by anyone who reads it. The glossary plays an extremely
important part in achieving this.
The glossary section contains all the reserved words, phrases, and acronyms used in the
SLA. Table 24 shows an excerpt from a SLA glossary as an example.
Without this glossary, both parties will naturally interpret key terminology in a manner that
best suits them. Reaching a common interpretation can be difficult as each party is also
likely to have a reasonable claim supporting their interpretation. The one with the greatest
bargaining power at the time will be the one who wins the argument. This is not the best way
to ensure a successful deal.
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