Outsourcing has emerged as an important tool, allowing the modern enterprise to offload selected business applications for independent third-party service providers to host. The outsourcing SLA governs those arrangements.
A provider's service level agreement
(SLA) defines the services being provided, including costs, access to support and other binding terms. But businesses must study the SLA carefully and clearly understand its terms before entering a long-term commitment with a partner that will ultimately have a profound impact on the success of that business. Pete Sclafani, chief information officer with 6connect, offered answers on some of the most pressing SLA questions facing prospective outsourcing clients.
How much negotiating room does a customer really have when discussing an outsourcing SLA with a provider? What can a customer do to enhance his bargaining position?
Pete Sclafani: The amount of negotiating room really depends on the service and provider.
The best advice is to really do your own research on the service being offered and the provider's relationship with its various vendors. For example, are they a SaaS platform hosted on Amazon Web Services? How does the provider's SLA compare with that of its vendors? By understanding the service ecosystem that is in place, you can get a better understanding of the product offering, and see where the weak points are that you should be concerned about. And this should help you identify key areas where negotiation is even possible.
You need to be savvy about the provider's product or service. This comes from your own research as well as from asking the provider direct questions. A provider should be up front on its SLA policies, how it got to those policies and what happens if the provider doesn't measure up. If the answers aren't forthcoming, it's a sign that you may be talking to the wrong person internally or they simply might not know. Either way, the questions that aren't answered often give you the best insights.
Another part of being a good customer is having knowledge of other SLAs from peers. Even if you are only looking at a single provider, you should have an idea of what competitive SLAs look like, so you have reasonable expectations right from the start.
Also, remember that outsourcing SLAs can indicate limitations. For example, consider a business that leases wholesale data center space from a provider that offers an SLA of 95% uptime. If that client then turns around and sublets services, promising an uptime of 98%, the client cannot deliver on that promise because they cannot guarantee more uptime than they receive themselves.
What "gotchas" do providers hide in their SLAs? How can customers mitigate them?
Sclafani: One of the issues with SLAs is overly complicated wording. I respect service providers that take a simple approach to SLAs and make them easily readable.
There are two main areas that you should look at in any SLA. The first is how downtime is defined, and the second is what the remuneration process will be should downtime occur outside of the SLA. Both of these are typically spelled out in detail, but you may have to dig around, depending on the way the SLA is worded. Some service providers don't include routine maintenance windows under the downtime heading, but other service providers do. Be sure you know the difference.
The best recommendation against unexpected "gotchas" is having the right level of contractual review. You probably have a contracts lawyer familiar with your industry, so his or her expertise can be an invaluable resource for finding unexpected or unpleasant contract terms.
Ideally, if you can get SLAs from each prospective provider for advance review, you can develop a good view of the contracts across each vendors' proposals -- the terms of one vendor may make more sense as you start comparing price points and SLAs against the competition.
How can customers "test" an SLA to ensure that a provider is adhering to its promised service levels? Are there any tools or established protocols that can help?
Sclafani: I have used three methods to test SLAs.
The first approach is to act like a customer with a problem. This gives you a great overview of their support process and the proficiency of their personnel. Calling during off-hours is also helpful to validate what "24/7" or "8x5" support really means.
The second method involves reaching out and actually talking to some of their current customers. Things will go wrong at some point, but ask how the outsourcing provider responds. Is their problem escalation process smooth? Do they provide timely updates and notifications? Talking to someone that has had a problem resolved will be able to give you a real-world scenario. Ideally, you will hear examples of things that went well and how issues were resolved.
The third method is to check the provider's current practices. For example, we had one prospect evaluating data center space with a promised SLA centered around uptime, temperature and humidity. One of our items to catalog in the request for proposal was the maintenance records for the facility. By looking at the reports, we were able to ascertain that their "regular testing" of the generators was only twice per year. In addition, we were also able to verify the level of deferred maintenance that their HVAC and UPS systems were subject to. We determined that this vendor was the least expensive option, but their facility -- though it showed well -- didn't have the paperwork to back it up.
An outsourcing SLA is the cornerstone of any relationship between a service provider and a client, but it's critical to understand the SLA's terms, know how the SLA compares to other providers in the industry and negotiate favorable terms on points that are most important to your business. It's also important to exercise due diligence to ensure that the provider can to meet critical terms such as uptime or response times.
This was first published in December 2012