Chapter 21 - Performance-Based Contracting and Service Level Agreements

21.10.1 Key points to developing a successful SLA

Agencies should undertake due diligence when developing and negotiating effective SLAs. This will allow an opportunity to verify costs of services, identify hidden costs, reveal consumption patterns, ensure legality of software licenses, and conduct benchmarking tests on systems. SLAs should include flexibility for changes in scope and technology.

The contract will stipulate that the supplier will be paid according to predetermined performance criteria such as availability, response time, number of downtime occurrences, etc. SLAs should include specifications regarding financial penalties in the event the supplier is unable to meet the SLA performance levels. If the supplier relies on partners or sub suppliers, the SLA can also apply to these second-level service providers. The primary supplier may have a network of service providers to provide their service responsibilities. In this instance, the SLA should contain a clause that stipulates the primary supplier is accountable for any damages caused by third party partnerships.

In developing and negotiating a successful SLA, the following elements should be considered and included:

• Definition of the agency's business goals, requirements and scope of services being procured.
• A detailed service description, duration of services, installation timetable, payment terms, terms and conditions and legal issues such as warranties, indemnities and limitations of liability.
• A repeatable process, with solid and accurate metrics' capture and analysis, to measure the supplier's progress and monitor performance.
• A documented reporting process that includes the type, amount, format and a schedule of information to be reported by the service provider and procedures for how the customer will oversee the agreement and ensure the performance measures are met.
• Agreed upon procedures for non-performance in case of unforeseen circumstances.
• Detailed service expectations, performance levels, positive and negative incentive structure, escalation procedures and legal ramifications; i.e., breach and default.
• An executed contract that binds the agency and the service provider; the SLA will be a part of this contract.