Providers often propose that their service-level agreements (SLAs) include both service creditsÂa financial credit to the buyer's invoice for a missed SLA goal and earnbacks a way to earn back those credits for subsequent good performance. But the apparent value proposition of those arrangements often does not hold up, as earnbacks can easily offset the credits, according to Betty Breukelman, partner at outsourcing consultancy Everest Group. "While initially appealing, the existence of service credit earnbacks for the supplier can completely negate the credits, especially if they are achieved too easily," Breukelman said.
4. Too Much Agreement
Think you don't want a provider that pushes back on your RFP? Think again. When providers don't raise any objections or bother to delve into the details of the service agreement, that's a red flag, according to Herrera of HfS Research.
"It's tempting to say 'we agree' to everything in the RFP response, but that is not likely to lead to a trusting, partnering relationship," he said. "The provider that says yes to everything usually doesn't know or doesn't care what they are doing. At a minimum, they should seek clarification on some SLA and other performance commitments."
5. Travel Costs
The transition phase of an outsourcing deal can be quite expensive. Some IT service providers may propose the use of pass-through charges for all travel related to the transition, rather than baking it into their own costs. That almost always leads to problems.
"[It] can be a source of considerable effort and consternation," said Marc Stark, director of KPMG Shared Services and Outsourcing Advisory. "It can become a difficult process for the client to manage."
6. Continuous Improvements
Continuous SLA improvements can be a good thing, but only if they offer value to the customer. However, Herrera warned that, "it makes no sense to ratchet up SLAs and wind up paying for levels of service the business doesn't actually need."
Similarly, vendors may also propose bonus or incentive payments for exceeding SLA targets. "In practice, however, these types of incentives are essentially tantamount to higher fees, as performance improvements typically do not translate into meaningful value in terms of reducing the customer's expenses or increasing their revenues," said Pace Harmon's Martin. "The bottom line is that a vendor's reward for exceeding service levels should be that they get to keep providing the service."
7. Late-Breaking Proposals