Hints f or Se r vi ce Le vel A g r ee me nt s
\"If you're not measuring it, you cannot manage it.\"
Noric Dilanchian, Managing Partner
noricd@dilanchian.com.au
Modern service level agreements reflect Responding to the change
fundamental changes in how we do business.
The demand for new legal relationships has
Understanding the change seen increasing use over recent decades of:
• partnering,
Traditionally trade in commodities and products • joint ventures,
dominated legal relations in commerce. • strategic alliances,
Trading relationships were relatively simple. • outsourcing,
Typically customers bought things and then • collaborations, and
looked after their support, servicing or • service level agreements.
maintenance. For these tasks there were more
people in trades to fix things that broke. A central feature of these relationships
contracts should provide for practical
It was often said that the best contract was one considerations for service delivery and
that was filed away after signature. reciprocity between the parties.
That era is long gone. The act of \"buying\" now All buyers and sellers can benefit from the
involves contracts which: types of clauses and schedules put into service
• relate more often to services than level agreements. It is a myth that service level
things (ie products or commodities), agreement features are exclusive to the IT,
• often involve linked transactions - for telecommunications and utility sectors.
products, services and support,
• document ongoing legal relationships Setting a service level is about defining
- not one off trades between suppliers standards and quality and ultimately price and
and their customers. value. This is of course relevant to all
contracts. However traditionally in contracts a
This contemporary configuration exists in major lot was left to common sense. That was OK
contractual relationships when the focus was on trade in things, in one-
More and more we between information off deals, for standard offerings. It is not OK for
technology suppliers and modern commerce given its dependency on
trade in or with
their customers for \"essential services\" or customisation, servicing,
customised bits
software, phone, hosting consultancy and ongoing support.
and bytes not
and Internet connection
standard bricks
offerings. It is also What is the service level agreement solution to
and mortar
common in other sectors. this need? Nowadays service level agreements
commonly set out provisions for:
The change from seller-buyer to symbiotic legal • service definition;
relationships has been driven by new or • timing standards;
evolving technical, commercial, management • minimum and maximum quality needs,
and societal needs. In the legal arena this has • compliance with set standards;
increased demand for legal relationships which • payment (incentives and rebates);
are customised, networked, collaborative or • consequences for performance drops;
innovative. How has the law evolved to cater to • current and future needs;
these more complex or sophisticated needs? • monitoring methods;
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Hints for Service Level Agreements DILANCHIAN
• security of premises and information; Increased Service Levels for Consumers
• alternative dispute resolution; and
• variation of arrangements. To illustrate the change in law and contracting
over 100 years even for things, assume you
In service level agreements for the IT, telecoms bought a new horse-drawn cart in 1905. Now
and utility sectors, minimum performance buy a new car in 2005.
standards can define the maximum percentage Purchase of the cart would have involved you in
of downtime including during peak usage times, negotiating one contract, with no obliged after
response times, the form of measurement, sales service. Unless agreed in advance, you
transaction volume, and the number of could not get a refund if the next day you did not
concurrent users. like it.
To ensure legal remedies will be available, it Contrast that to buying a new car in 2005:
1. There is still contract negotiation.
is vital to prepare for and clearly state the
2. The car has a service warranty, extending
consequences of performance shortfalls. It
servicing (and the life of your contractual
is common sense to resolve issues before
relationship with the dealer) to a post-
signature, and to deal with them before they
purchase period.
become problems or litigation fodder.
3. The car comes with finance and optional
For vendors and customers, flexibility for
extras, each a potential additional contract
variations is achieved by providing for regular
with the same or another vendor.
reviews, factors which must trigger costs
4. In addition to the contract/s and warranty, the
variations, and compliance with changing
car purchase transaction is affected by
market and technical standards and business-
legislation, including the Motor Dealers
specific needs, processes and technology. Regulation 2004 (NSW) (which imposes a
post-purchase cooling off period), Fair
For customers, good service level agreements Trading Act 1987 (NSW), Sale of Goods Act
also include both remedies and penalties for 1923 (NSW) and Consumer Credit Code.
missing set service levels. These penalties
need to motivate the vendor to achieve
customer objectives. Customers don’t want to Dilanchian Solutions
miss service levels over and over again.
Deal Making & Contracting is our solution for
negotiators, contract managers and businesses dealing
Writing the customer's business objectives or
with contracts. Deal Making & Contracting is relevant
goals into a service level agreement can be for large scale procurement, tendering and outsourcing
useful. To minimise third-party performance as well as for repetitive standardised transactions which
risks, it may be sensible for a customer to insert require template legal documents. Our expertise
includes:
a clause stipulating that the primary vendor (ie
• Service level agreements and metrics
prime contractor) remains accountable for
• Project management methodology
shortfalls caused by third-party partners. • Non-competition provisions for contracts
• Alignment of legal documentation with business and
These are among the many ways of using the management needs
law to achieve better, faster and cheaper
Dilanchian Lawyers & Consultants
outcomes. Service level agreements, or Sydney, Australia
service level clauses in contacts, are tools Tel (+612) 9269 0229
which can benefit buyers and sellers providing Email info@dilanchian.com.au
For more papers visit www.dilanchian.com.au
\"win-win\" outcomes.
Web www.dilanchian.com.au | Email info@dilanchian.com.au 2