April 27, 2001, 7:56 PM — Outsourcing can be critical to running an effective IT department, particularly in a tight tech economy. But both the proliferation of outsourcing services and the shakeout of service providers in recent months emphasize the importance of a service-level agreement (SLA).
An SLA is the contract that binds the customer and the service provider. So it's worth the customer's while to do a little research before signing on the dotted line. Here are 10 of the most common myths about SLAs.
1. SLAs are useless.
An SLA is the contract that seals a customer's partnership with a service provider. It is the document that lists the vendor's obligations and sets forth penalties if the vendor fails to provide the agreed-upon services.
2. SLAs merely outline services provided.
While services provided are an important aspect of an SLA, the comprehensive contract also includes performance levels and legal ramifications. Information that should be contained in an SLA includes the purpose of the SLA, description of service, duration of service, installation timetable, payment terms, termination conditions, and legal issues such as warranties, indemnities, and limitation of liability, according to the ASP Industry Consortium's "Buyers Guide to Service-Level Agreements."
3. Business goals should not be included in an SLA.
Writing the customer's business goals into an SLA provides the vendor with a greater understanding of the customer's priorities, which can prove invaluable in a time of technical crisis.
4. The services determine pricing.
The single greatest factor in price determination, as specified in an SLA, is performance level. Customers pay the vendor according to predetermined performance criteria such as availability and response time. An SLA should also include specifications regarding financial penalties, in the event that the vendor is unable to meet the performance levels indicated in the SLA.
5. The vendor's standard SLA can't be customized.
Many vendors do provide a standard SLA, and some even market their services based on the strength of their SLA. But almost all vendors will customize their services and their SLAs to satisfy customers' requirements.
6. There are no metrics for service performance.
Depending on the nature of the services, customers can measure performance by such metrics as network or application availability, mean time to restore, latency, help desk response time, and even the time of day that maintenance is performed. The ASP Industry Consortium is currently developing a set of metric standards by which service providers can be measured.
7. The vendor will monitor performance.
Vendors generally do not monitor their own performance, although an increasing number of software vendors are producing tools that monitor service provider performance on behalf of their clients.
8. An SLA only applies to the vendor that signs it.
While this reasoning appears logical, service providers often participate in an entire network of service providers. This network can include IT functions that they outsource, as well as "extended partnerships," which allow other companies to cover their service responsibilities. To minimize third-party performance risks, customers should insert a clause stipulating that the primary vendor remains accountable for any damages caused by third-party partnerships.
9. If it's in the SLA, it's guaranteed.
In the excitement of the sale, vendors sometime promise services that they can't provide. For this reason, customers should be wary of exacting demands that the vendor is hesitant to meet. Customers should also remember that an SLA is only a contract that represents a partnership, and therefore they must continue to manage the vendor for the duration of the relationship.
10. Remediation of a failed SLA -- or partnership -- is impossible.
Many consulting firms offer remediation services that help customers and service providers to renegotiate the SLA and the partnership. In fact, as outsourcing becomes more popular, consulting firms are doing more and more remediation work. And, if all else fails, there's always legal recourse.
