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How to prepare Service LevelAgreements

What is a Service Level Agreement (SLA)? 2SLAs, charters and service guarantees 2Service levels 3SLA applications 8The advantages and disadvantages of SLAs 9The preparation of SLAs 10SLA format 14Monitoring 14Reasons for SLA failure 15References 16Appendix A - A format suitable for an internal SLA 17Appendix B - A model Service Level Agreement 18Appendix C - Model service level agreement suitable for use ina local government council 24

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What is a Service Level Agreement (SLA)?Possibly the best known definition of an SLA is that ofHiles[1]:

‘An agreement between the provider of a service andits users which quantifies the minimum quality ofservice which meets business needs.’

The term ‘customer’ is often applied, as in thishandbook, to refer to the user of a service.

SLAs, charters and service guaranteesSLAs are distinct from service charters and serviceguarantees. A service guarantee promises the customera certain service quality and backs up this promisewith a payout.[2] The promises given in a serviceguarantee may refer to the service as a totality or tospecific aspects of the service.

In what are known as ‘total satisfaction guarantees’, thepayout is a total refund of the cost should the customerbe dissatisfied. Specific service guarantees limit thepayout to compensation for dissatisfaction withidentified aspects of the service, such as late delivery.

Service guarantees also are distinct from ‘charters’.Charters such as The Patients’ Charter or The Parents’Charter are often derived from Central Governmentinitiatives, legal requirements or good professionalpractice, but, unlike service guarantees, they do notpromise a payout if the promised level of service is notachieved. Thus The Patients’ Charter includes suchstandards as:• emergency (999 call) ambulances should arrivewithin 14 minutes if you live in an urban area or 19minutes in a rural area

• all health workers should show considerationtowards your privacy, dignity and religious andcultural beliefs.

No payment will be made if the service fails to meetthese standards. Charters do, however, specify thestandards that service providers are expected to meetand provide customers with an indication of the levelof service they are entitled to expect.

The main difference between SLAs and serviceguarantees are as set out in Table 1.

Table 1

Internal SLAs are not intended to have legalconsequences, since customer and service provider aremembers of the same organisation. There will also beno monetary compensation, although non-compliancemay be penalised indirectly. For example, serviceproviders may be required to work overtime withoutpay to make good a failure to meet the promisedperformance levels.

How to prepare Service LevelAgreementsWhat is a Service LevelAgreement (SLA)?

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SLAs

Are bilateral, such asservice levels negotiatedbetween the customerand the provider.

Are tailor-made to suitthe requirements of thecustomer.

Are often required by thecustomer, for example,provision of informationnecessary for theprovider to meet theagreed levels.

Service guarantees

Are unilateral, such asservice levels decidedsolely by the provider.

Are ‘off-the-peg’standards, promised bythe provider.

Do not normally requirecustomer inputs.

External SLAs will have contractual implications. It isrecommended that they are generally a part of theoutsourcing contract and should be treated as aschedule (or part of a schedule) to the agreement.

The European Public Procurement Directives(2004/18/EC) apply to organisations ordinarily coveredby these rules. Under the Directives, it is illegal to usetender assessment criteria that have not been broughtto the tenderers’ notice before they submit their bids.Much of what goes into the SLA could be used fortender assessment purposes. The public sectorpurchaser could therefore include SLA targets andstandards in the Invitation to Tender (ITT).

Service levels

3.1 Principles of setting service levelsThe purpose of setting service levels is to enable thecustomer to monitor and control the performance ofthe service received from the provider against mutuallyagreed standards.

Mutually agreed service levels are benchmarked forboth customers and providers. For customers, theminimum acceptable level of service is that required tomeet the present requirements of a particular function,activity or organisation, and against which requiredlevels can be increased, reduced or deleted in thefuture. For providers, service levels indicate promisedminimum standards to which they must adhere. Whenservice levels are not met, the onus is on the providerto take appropriate remedial action. There are fourmain principles that should be observed when agreeingservice levels.

Service levels should be:1. Reasonable, since unnecessarily high service levelsmay entail higher charges and focus the attention ofservice providers on those aspects of service thatare being monitored, with possible reduction ofattention to non-monitored aspects.

2. Prioritised by the customer, that is, customersshould identify the aspects of a required service thatare important and prioritise them in order along anagreed scale. Thus computer software errors may becategorised as: (1) ‘critical’; (2) ‘major’; (3) ‘urgent’;(4) ‘important’; and (5) ‘minor’. A three-point scalemight include criteria that are: (1) ‘most important’;(2) ‘important’; (3) ‘less important’.

3. Easily monitored, this means avoiding thespecification of levels that are subjective, intangibleor incapable of quantification; for example,statements such as ‘the provider will furnish a highlevel of service’ are meaningless.

4. Readily understood by the staffs of both customersand providers.

3.2 Performance criteriaPerformance criteria in relation to services are anaspect of quality management. Service quality may bedefined as:

‘The degree to which customers’ satisfaction with aservice meets the expectancies they had about thatservice before using it.’[3]

Factors that determine customer expectations include:• what customers think they need;• their past experiences of using a service;• what others have experienced in respect of aservice;

• what service providers promise;• benchmarking against other providers;• the price paid.

Service expectations that form the basis of performancecriteria are both general and specific.

How to prepare Service LevelAgreementsService levels

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3.2.1 General factorsGeneral factors include those identified by Parasuraman, Zeithaml and Berry that they applied to an assessmenttool SERVQUAL that aimed to measure both customer expectations and satisfactions in specific service applicationsor providers. The above writers originally specified ten dimensions of service quality.[4]

These are set out in Table 2.

Table 2

Dimension Definition Example

Tangibles Appearance of physicalfacilities, equipment, staff andcommunication materials

Does the service have pleasantoffices?

Reliability Ability to perform thepromised service dependablyand accurately

Is the contracted service alwaysdelivered on time and tospecification?

Responsiveness Willingness to help customersand provide prompt service

Do service staff always try toassist customers, especially withexceptional problems andsituations?

Competence Possession of the requiredskills to perform the service

Are the staff good at their jobs?

Courtesy Politeness, respect,consideration and friendlinessof staff

Do staff treat customers withrespect?

Credibility Trustworthiness, believabilityand honesty of staff

Do customers trust the staff ofthe provider?

Security Freedom from danger, risk ordoubt

Do customers feel safe using theservice?



The ten quality dimensions listed in Table 2 can bereduced to five, namely:

3.2.2 Specific factorsSpecific factors vary according to the nature of theservice and the individual customer. Examples of SLAsrelating to cleaning and catering are shown in Figures1 and 2.[5]

Dimension Definition Example

Access Approachability and ease ofcontact

Is it easy for customers to accessthe service?

Communication Keeping customers informedin language they understandand listening to theirrequirements

Do service providers keepcustomers informed regardingachievements or likely non-achievement of service levelsand possible improvements?

Understandingthe customer

Making efforts to knowcustomers and theirrequirements

Does the service providerattempt to ascertain and meetthe needs of the individualcustomer?

Tangibles Defined in Table 2.

Reliability Defined in Table 2.

Responsiveness Defined in Table 2.

Assurance Customer confidence in the service providers based on belief intheir competence, courtesy, credibility and security

Empathy Customer confidence that the service providers will identify withthe customer’s service requirements and expectations in relationto, for example, ease of access, good two-way communicationand understanding.



Figure 1Service provision (cleaning)

Service levels

1 2 3

Good standard ofappearance with theabsence of soil.

Full floor clean not toexceed 5 working days.

High standard ofcleanliness andappearance at all times,with particular attentionto well finished services.

All waste cleared awayand disposed of with zeroimpact on business. Fulldaily clean and emptyingof bins.

Waste emptied to preventover-filling.

Full floor clean not toexceed 5 working days.

Response to a request forcleaning assistance andspillages and other debristo be cleared awayquickly and efficientlywith minimum disruptionto users. 45-minuteresponse to all areas.

Spillages – 15 minutes toprestige areas and 45minutes to other areas.

Waste emptied to preventoverfilling.

An emergency cleaningservice to be providedoutside normal workinghours with 24-hour call-out facility.

Emergency call-outresponse: 2 hours.

Spillages – immediateresponse to prestige areasand 45 minutes to otherareas.

Compliance with alllegislation, adequaterecords maintained, zeroexposures.



Figure 2Service provision (catering)

Service levels

1 2 3

To provide financialinformation to allow themanagement of budgetsagainst pre-determinedtargets to ensure a cost-efficient service.

To maximise customersatisfaction andcontinually exceed theirexpectations.

To provide customerswith quality food theywant to eat.

To communicate with thecustomer.

To keep updated andrespond to market trendsin food and service.

To comply with relevantlegislation and companypolicies, practices andprocedures.

To train all staff in corevalues, operationalprocedures and servicelevels.

How to prepare Service LevelAgreementsSLA applications


SLA applicationsSLAs are applicable in two situations: in the provisionof internal specialist support services; and inoutsourcing.

4.1 Internally used and provided specialist supportservicesThe first SLAs were developed to meet the criticismthat electronic data processing (EDP) systems wereoften developed by headquarters specialists who failedto give sufficient consideration to the needs of thesystem users. The aim of such early SLAs was to makeEDP provision more customer-orientated or ‘userfriendly’.

A later development was the concept advanced by theJapanese quality guru, Kaoru Ishikawa, that ‘the nextprocess should add value to the one that went before’.This means that the benefits of a service received by aninternal customer from an internal supplier, as well asthe costs of delivering the service, should be capable ofbeing quantified in money terms. Many private andpublic sector organisations have adopted the approachthat, within an organisation, information technology,legal, human resources, purchasing and other supportservices may sell their expertise to internal customersat an agreed transfer price. Among the private sectorcompanies that have done so in the UK are Powergen,Prudential and Sony. Public sector organisationsinclude some Central Government departments andmunicipal and health authorities. SLAs are required tospecify the level of service required by customers fromsuppliers.

4.2 OutsourcingOutsourcing may be defined as:

‘The purchasing of a specific service(s) or facility(ies)from an outside provider under the terms of a contractwhich should include a service level agreement.’

According to the British Government Market TestingProgramme (1993) the functions, services or facilitiesmost easily outsourced are those that are:• ‘resource’ intensive – especially those with highlabour or capital costs

• relatively discrete areas• specialist and other areas• characterised by fluctuating work patterns inloading and throughput

• subject to quickly changing markets for which it iscostly to recruit, train and re-train staff

• subject to a rapidly changing technology requiringexpensive investment.

Examples of outsourced services include:• building repairs and maintenance• car park management• catering and hospitality• computers and information technology• library and information services• medical/welfare• pest control• security• training centre management• transport management• travel administration• waste disposal.

Rothery and Robinson [6] state that the followingactivities should not be outsourced without carefulconsideration:• management of strategic planning• management of finance• management of management consultancy• control of supplies• quality and environmental management• supervision of regulatory requirements such as:product liability; misleading advertising; quality;environmental regulation; staff health and safety;and product/service safety.

For all outsourced services it is important to specifyminimum acceptable service levels and to establishprocedures to ensure that the agreed levels are beingmet and to consider whether they need to be reviewed.

Issues around outsourcing warrant their ownconsiderations, for example, legislation relating to theTransfer of Undertakings Regulations (TUPE). As a

result of TUPE regulations, the same people willprovide the service in an outsourced arrangement aswere providing it in-house. They will therefore retaintheir views and behaviours about using service levelagreements which could be positive or negative. CIPShave produced Knowledge Works papers to coveroutsourcing and the TUPE regulations.

How to prepare Service LevelAgreementsThe advantages and disadvantages ofSLAs


Advantages Disadvantages

The customers for, and providers of, specific servicesare clearly identified.

The joint drafting of SLAs, installation of measurementprocedures and negotiation of SLAs are costly to bothcustomers and providers.

Attention is focused on what a particular service orservices actually do, as distinct from what it is believedthey do.

There is a potential increase in bureaucracy andpaperwork.

Customers are more aware of what services theyreceive and what additional services and levels ofservice a provider can offer.

Internal providers of services may be treated asexternal suppliers rather than as colleagues within thesame organisation.

It is clear what the real needs and levels of servicerequired by the customer are, and whether these canbe modified at a possibly reduced cost.

Staff training may be needed in the working of SLAsand to overcome possible initial resistance to theirintroduction.

Services and service levels that add value can bedistinguished from those that do not.

Internal SLAs are already feasible if they provide clearbenefits to both customers and providers thatoutweigh the cost involved.

Customers have a heightened awareness of what aservice or level of service costs and can then evaluatethe service or level on a cost/benefit basis.

The need to select specific metrics to measureperformance can end up with the supplier departmentchasing the numbers, rather than making the decisionsthat provide the best outcome to the customerdepartment. This is true of any key performanceindicators (KPIs). It is therefore important to ensurethat KPIs within SLAs are rounded.

The advantages and disadvantage of SLAs

The preparation of SLAs

6.1 Outsourced servicesService providers usually have standard SLAs indicatingthe service level and key performance indicator(s) foreach activity. With outsourced services and externalarrangements the SLA will tend to form part of a contractfor services covering the whole commercial deal.Examples of such SLAs are shown in Figures 1 and 2.

6.2 Internal SLAsAs stated earlier the preparation of internal SLAs canbe an involved and expensive process consisting of thesteps shown in Figure 3. The considerations listed inStep 4 in this figure relating to specifications apply toboth outsourced and internally provided services andindicate some matters to which special attention shouldbe given when negotiating outsourced SLAs. Thespecification can also be the basis of tenderdocumentation sent to potential outsourcers.

Figure 3Main steps in the preparation of an internal SLA

(1) Obtain top management approvalTop management approval should be given at a highlevel if it can be shown that the advantages andbenefits accruing from SLAs outweigh thedisadvantages and costs. There can be problems if

How to prepare Service LevelAgreementsThe preparations of SLAs


Advantages Disadvantages

Monitoring of services and service levels is facilitated. SLAs are an important measure of general overallperformance, but there are some services where failureis critical. In these instances, contracts shoulddemonstrate the Failure Mode & Critical Analysis(FMCA) methodology.

Customer reporting of failure to meet service levelsenables providers to eliminate the causes and effectimprovements.

Understanding and trust are fostered betweencustomers and providers.

1. Obtain top management approval

2. Establish SLA project team

3. Identify services to which SLAs will apply

4. Preparation of draft SLA specification

5. Determine basis of charging by internal providers

6. Finalise and adopt SLA

7. Designate SLA Managers

8. Implement and manage SLA

individual customers within a business have certainexpectations, but the corporate business has (for goodreasons) signed up to something different. This can bean internal communications issue.

(2) Establish the project teamBy definition, an SLA has to be negotiated by thecustomer and service provider together. The projectteam should therefore comprise representatives of bothparties together with appropriate experts, for example,computer and legal services and procurement. It ispreferable for the team to be led by a neutral memberof senior management.

(3) Identify services to which SLAs are to applyIt is advisable to introduce SLAs slowly and pilot onearea of service or activity at a time. The service selectedshould have a high profile and be one that serves thewhole organisation, such as computer or legal servicesor training. It should also have a high existingreputation for efficiency since it is unlikely that aservice provider without such a reputation would beable to meet the agreed levels and the credibility of anySLA would therefore be adversely affected.

(4) Preparation of a draft SLA specificationThe preparation of the specification is the first aspectof SLAs which is likely to add value since it compelsinternal customers to determine what services theyreally need and how they can carry out their ownfunctions more effectively and efficiently if theirexpectations are met. It also gives opportunities to bothparties to make suggestions for service improvements.

The main aspects to consider when drafting SLAspecifications can be classified under the followingheadings: (a) services and service levels; (b)monitoring; (c) charging; (d) duration and termination;and (e) miscellaneous.

(a) Services and service levels• A detailed preliminary description of the service(s)and level(s) of service expected by the customer.

• Levels of quality, reliability, consistency and so on,required.

• Expected frequency and timing of service.• Peak period service.• Emergency response times for faults, call-outs andmaintenance.

• Services, facilities and other assistance to be givenby the customer to the provider.

(b) Monitoring• Determination of performance criteria and levels.• Determining appropriate performance indicators.• Monitoring procedures, including frequency ofreviews.

• Procedure for the notification of dissatisfaction withservice and service levels.

• Procedures for correcting any failure to meet theagreed service levels.

• Procedure for the resolution of disputes.

(c) ChargingSee page 12.

(d) Duration and termination• Initial duration of the SLA.• Arrangements for renewal.• Termination.• Termination before the agreed date.

(e) Miscellaneous• Security.• Staff training.• Incentives.• Insurance liability.• Subcontracting by the provider.• Health and safety requirements.• Holiday coverage.



(5) Determination of the basis of charging by internalprovidersCharges or transfer prices made by internal serviceproviders should:• be seen to be consistent and certain• be understood by customers and open tonegotiation

• where possible, offer the customer a choice of options• be easy to invoice• be capable of comparison with charges made byexternal providers and costs for similar services inother organisations.

In addition attention should be given to:• service credits, such as sums owed to the customerby the provider for non-performance or failure tomeet agreed service levels

• extra charges for additional services or higherservice level requirements

• variation of charges• statutory sales taxes, for example, VAT• agreed extras, for example, travelling costs, waitingtime, and so on

• agreed basis of increases to cover additional costs,for example, overtime, inflation, and so on.

Agreement on transfer prices is essential to enable theservice provider to measure or budget anticipatedincome and customer’s anticipated costs. Such pricescan only be determined on the basis of the sharing ofaccurate information between providers and customers.

Transfer prices will be those appropriate to the normalpractice of the service provider, for example, rate permile for transport according to the class of vehicle,actual time multiplied by an appropriate hourly rate ora professional fee for legal services. Transfer prices takefour main forms:(a) Negotiated transfer prices: where there are noprecedents or existing bases for determining thetransfer price or where the services required are non-standard. An element of negotiation will, of course,

enter into all transfer pricing.(b) Cost-based transfer prices: the actual or standardcosts of providing the required service(s) at therequired level. This is probably the most usual methodof transfer pricing. The advantages and disadvantagesof cost-based prices are listed in Table 3.

Table 3

(c) Market-based transfer prices: those that serviceproviders would charge or expect to charge to anexternal customer. When a service is provided for alarge number of internal customers, for example,computer services, a subscription rate may be charged;the rate varies according to the expected usage andcomplexity of service. The advantages anddisadvantages of market-based prices are set out inTable 4.



AdvantagesEasy to integrate withcost centre controlsystems.

Create awareness ofservice costs.

Can be charged tocustomers on a cost plusbasis.

Cost rates can be basedon units that customersactually consume orinfluence, for examplecost per transaction,page, journey or standardcost per developmenthour.

DisadvantagesProvider inefficienciescan be passed on tousers.

Can be compared withdissimilar external ratesbased on marginal ordiscounted costs. Costcomparisons aretherefore difficult.

Disagreement may ariseover what should beincluded in costs, suchas overhead rates.



Table 4

(d) Dual transfer prices: those where customers arecharged at standard cost but the provider is creditedwith standard cost plus or minus agreed variances plusa standard profit margin. The advantages anddisadvantages of dual transfer prices are set out inTable 5.

Table 5

One other approach is of course one in which notransfer pricing takes place. This has the advantage ofavoiding conflicts between customers and providers.The disadvantages are that it does not encourage costconsciousness and often leads to irresponsible use ofinternal services and unreasonable demands by internalcustomers.

(6) Finalise and adopt the SLAThis step involves the preparation of the SLA, togetherwith such supporting documentation as:• cost or transfer price schedules;• customer responsibilities.

A proforma of an SLA is shown in Figure 4.

(7) Designate SLA managersSLA managers are named persons designated by thecustomer and the provider who are responsible for theday-to-day management of the SLA and through whomall matters relating to implementation should bechannelled.

(8) Implement and manage the SLAThis final step involves both staff training andestablishing review meetings. Staff training should


Facilitate comparisonwith external providers.

Avoid the need to defineor negotiate what isincluded in costs.

DisadvantagesService needs are oftenunique, unclear and notreally price sensitive.

In practice, comparisonsare difficult to make dueto variables in whatservices externalproviders actuallysupply.

Market prices mayencourage customers tobuy and providers to sellexternally when thismay not be in thestrategic interest of theorganisation. It can alsolead to under-utilisationof internal resources.


Can assist customer-provider partnerships.

Motivate both providersand customers.

DisadvantagesCan be seen as artificialaccounting.

Are costly and complexto apply.

emphasise the need to identify and communicate errorsand how SLAs can help in the achievement of betterservice quality. Review meetings between internal andexternal service providers should be held at regularintervals to discuss how the SLA is working and whatimprovements might be made.

SLA format

The most useful advice relating to the format of SLAs issummarised by the acronym KISS (Keep It Short andSimple). As indicated above, the actual agreement isseparate from the specification. The latter and otherdocumentation should be mentioned in and attached tothe SLA.

SLAs will vary according to whether the service isexternally or internally provided. Outsourced SLAs areoften in a standard format furnished by the externalprovider. Such SLAs should, generally, be subjected toclose scrutiny since they tend to favour the provider.Neither should customers sign incomplete SLAcontracts. In respect of Information SystemsOutsourcing, Lacity and Hirschheim [7] point out that:

‘During negotiations, the vendor uses a host of theirtechnical and legal experts to represent their interests.These experts thoroughly understand the way tomeasure information services and how to protect theirinterests. In order to counterbalance the vendor’spower, customers should have experts to protect theirinterests…Two types of outsourcing experts arerecommended – a technical expert and a legal expert.’

Although such experts are expensive they help toprevent excessive charges and conditions.

Typical formats for SLAs are shown in Appendix A,Appendix B and Appendix C.

MonitoringMonitoring procedures will be agreed before the SLA issigned. Such monitoring involves the preparation ofservice reports by the provider, verification by thecustomer and joint review meetings.

8.1 Service level reportsService level reports should be furnished at agreedintervals. Lacity and Hirschheim[8] recommend thatsuch service reports should:• document the agreed-upon service level;• state the service performance for the current timeperiod;

• indicate exception reporting for missed measures;• provide a trend analysis of the performance fromprevious periods.

8.2 VerificationVerification of a provider’s service level report is theresponsibility of the customer’s SLA manager.

8.3 Service review meetingsService review meetings should be held frequentlyduring the early days of an SLA but will eventuallysettle down to a regular fixed meeting schedule. Asshown in Figures 5 and 6, particular aspects of keyperformance indicators may be monitored at varyingintervals. Such meetings should conform to a setagenda and the proceedings should be properlyminuted and circulated. A typical agenda is shown inFigure 7.

How to prepare Service LevelAgreementsSLA format



Figure 5Frequency of review of key performance indicators(catering)

Figure 6Frequency of review of key performance indicators(cleaning)

Reasons for SLA failure• The reasons for SLA failure include:• lack of commitment by customers and serviceproviders

• an inadequate support structure, for example, failureto implement the SLA concept through a projectteam, appoint an SLA manager and hold regularservice level review meetings

• additions to workloads, for example, SLAs requirean additional reporting system and, internally,transfer pricing. Attention should be given tocompensating for such extra work by relieving staffconcerned of some existing duties

• SLAs are too detailed• SLAs are not detailed enough• inadequate staff training relating to the purpose,advantages and implementation of SLAs.

Figure 7Agenda for service level review meeting

How to prepare Service LevelAgreementsReasons for SLA failure

(i) Apologies for absence*

(ii) Minutes of previous meeting(iii) Matters arising(iv) Review of criteria and target performance for

the current SLA(v) Observations on Service Level Reports for the

current period(a) Provider representative(s)(b) Customer representative(s)(vi) Consideration of any problems and their impact

on the customer(vii) Negotiation of corrective action plans(viii)How can the existing SLA specifications be

improved?(ix) Any other business

*Note: Absence should be strongly discouraged.

Performance against budget

Cost and selling prices reviewed

Verbal comments from users

Formal feedback through customer

comments cards

User satisfaction survey

QA audit

Training course evaluation

Training review

Monthly

Monthly

Weekly

Monthly

Annually

Quarterly

Quarterly

Annually

Performance against budget

External benchmarking

User satisfaction survey

Help desk report

Sample QA audits

>5% of activities not completed and/or

service standard not met = fail

Audit to check 100% compliance with

all legislation

Monthly

Annually

Annually

Monthly

Quarterly

Random

check

Quarterly

References

1. Institute of Management Checklist 007,Implementing a Service Level Agreement.

2. Hart, C W L, July–August 1988 ‘The Power ofUnconditional Service Guarantees’, Harvard BusinessReview, 66(4) p54-62

3. Quoted in Dickens, P., Quality and Excellence inHuman Services (John Wiley, 1993), ch. 2, p. 20.

4. Quoted in Dickens, Quality and Excellence inHuman Services, ch. 1, p. 22 (adapted).

5. By kind permission of Rentokil Initial plc.6. Rothery, B. and Robinson. J., The Truth AboutOutsourcing (Gower, 1995), ch. 5, p. 66.

7. Lacity, Mary C. and Hirschheim, Rudy A.,Information Outsourcing Systems (John Wiley,1993), ch. 7, p. 244.

8. Lacity and Hirschheim, Information OutsourcingSystems, ch. 7, p. 251.

How to prepare Service LevelAgreementsReferences

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1 References and foot notes


Appendix A A format suitable for an internalService Level Agreement

SERVICE LEVEL AGREEMENTThis Service Level Agreement (SLA) is between…………………………… (internal provider) hereinafterreferred to as ‘the provider’ and……………………………… hereinafter referred to as‘the customer’ for ……………………… services from……………… to ……………… (specify the time forwhich services are to be initially provided).

SERVICES TO BE PROVIDEDThese are as stated and described in the attachedspecification.

TRANSFER PRICESThe following rates will be charged by the provider tothe customer

£ ………………… per …………………(plus VAT if applicable)£ ………………… per …………………(plus VAT if applicable)£ ………………… per …………………(plus VAT if applicable)

These rates will be increased by £ …………………….per ………………… for any additional services notincluded in the attached specification.

To provide for inflation the rates may be increased oneach ……………… in accordance with the……………… Index.

FACILITIESThe following information or documents will be madeavailable by the customer to the provider at or beforethe times indicated and the places stated. The customer

will also give the provider all other reasonable facilitiesrequired...............................................................................................................................................................................................

CONTACT POINT FOR QUERIESProvider …………………………..Phone …………………Email ……....……..............…….. Fax ………………….Customer …………………………Phone …………………Email …………..................…….. Fax ………………….

PAYMENTThe provider will invoice the Finance Director within………… days of the end of each ………………………and will, at the same time, send a copy invoice to thecustomer. The Finance Director will then charge thebudget of the customer within ……………… daysunless, in the interim, notice in writing has been givenby the customer of an outstanding query by thecustomer to both the provider and the Director ofFinance.

SERVICE CREDITSCharges will be reduced by £ ……………for eachoccasion on which ………………………….. and by£………… for ……………………………

DISPUTESDisputes that cannot be resolved by the parties will bereferred to …………………………. for settlement.

SIGNED …………………………………………… for theprovider(Name, position and date)

SIGNED ……………………………………………… forthe customer(Name, position and date)

How to prepare Service LevelAgreementsAppendixA A format suitable for aninternal Service LevelAgreement


Your company name

Service Level Agreement (SLA)

BETWEEN

Contracting and Procurement (CP) and ENGINEERINGDEPT (EDPT)

Insert date

PURPOSEThe purpose of this Service Level Agreement (SLA) is tooutline the services provided by the Contracting andProcurement Department (CP) and the specificperformance targets that must be attained to supportthe business needs of the Engineering Dept (EDPT).This particular agreement also outlines the relationshiprequired between CP and the Line department in orderto attain high levels of service delivery.

ROLES and RESPONSIBILITIESEDPT and CP, in support of our Customer’s business,want to achieve high performing Value AddedContracting and Procurement Services to the Business.The roles of EDPT and CP must be dischargedeffectively to facilitate an enabling environment fordelivery of these agreed services to the line.

Contract Holders/Sponsors have prime responsibilityfor their contract portfolio; effective contractmanagement will benefit them, as well as meetingcorporate obligations. The two principal components ofcontract management are:

Business Controls Framework within which allcommercial activity shall be conducted.CP is the process owner for the company’s indigenouscontracting policy and requires the support and co-operation of all contract holders/sponsors to effectivelyimplement this Policy, including the feedback featureson indigenous Contracting performance included in thePolicy. The Indigenous Contracting Policy is part of theCommercial Management Governing Policy.

The foundation of any commercial controls frameworkis a comprehensive Contracting Policies and ProceduresManual (CPPM), which is updated on a regular basis toreflect policy and organisational changes. In addition todescribing the contracting process, the manual sets outthe roles and responsibilities of CP and other partiesinvolved in the administration of the contractingprocess.

Contracting and procurement servicesWhile the Line contract holders have overallresponsibility for the management of their contracts, CPis responsible for providing pre and post awardcommercial support services to EDPT. The objective isto empower and enable Line contract holders toeffectively manage their contracts. The full range ofservices available from CP is set out in the Contractingand Procurement Management Systems Manual,available on the company intranet.

How to prepare Service LevelAgreementsAppendix BA model Service LevelAgreement

Service Provider: CP

Customer: EDPT


In addition to the foregoing, CP provides the followinggeneric services to all EDPT line departments:

For full detail on CP and Customer roles andresponsibilities refer to the CPPM.

KEY PERFORMANCE INDICATORS (KPIs)As a means of ensuring quality of the services providedby CP to EDPT, the following KPIs shall be used tomonitor the work done. In order for CP to achieve theset Targets, EDPT is expected to meet a set of KPIs alsoset out below.

How to prepare Service LevelAgreementsA model Service LevelAgreement

Contract Planning Contract DocumentPreparation

Commercial Advice Commercial Evaluationof Tenders

Claims Analysis andReporting

JV Expediting

Process and InformationManagement Systems

Compliance Monitoring

Contract StrategyDevelopment

SCA/ Spend Analysis

Market Intelligence Contract PerformanceMonitoring

Contract Close Out Contract Reviews

Table of KPIs



INDICATORS MEASURE (CP Dept) TARGET MEASURE (EDPT) TARGET

Procurement Availability of materialsand equipment based onagreed ROS dates (%)

97% On time submission ofmaterial requisitions toenable CP to meet target

7 months before ROSdate

% Rush Requests Number of requests whichdo not allow for agreedservice lead times(expressed as a percentageof total requests)

<5% Keep No. of Rush Ordersbelow agreed target

< 5%

e-Procurement Savings from 'OLB' as apercentage of spend (%)

10% OLB missedopportunities (%)

0%

Stock Achieve reduction ininventory level (12/02inventory level as base)(%)

10% Jointly review MoribundStock Listing and approvewrite-offs not later than 3mths after review.

< 3 mths

Critical Spares availability(%)

93% On time submission ofrequirements plan &budget delegation

4 months before ROSdate

CustomerSatisfaction

Customer Satisfactionlevels

>70% Joint review and sign offof SLAs

Quarterly

Development of 3year Contract Plan

Contract Plan shall beupdated, and agreed withLine department at theend of each quarter

100% On time input byCustomer into thedevelopment of Contractstrategies

Monthly




Completion oftender process andaward of contract

Number of incidentswhere authority & CPapproval has beenobtained prior toexecution of the work

100% On time registration ofdetailed workscope byCustomers

8 weeks beforecontract placement forMinor contracts

Number of incidentswhere work hascommenced with nosigned contract (orinterim agreement) inplace 1

0% On time registration ofdetailed workscope byCustomers

8 weeks beforecontract placement(for emergency cases,Online approval ofrelevant contract panelsmust be obtained priortowork commencementand 2 WEEKS beforecontract placement)

Following approval by allparties time taken forcontract document orinterim agreement readyfor signature

7 days Prompt review & sign offof contract documents

Sponsor should reviewwithin 2 days

Contract close out Expired contracts closedout after completion ofperformance evaluationvia CMS and relevantapprovals for close outreceived

< 6months On time close out ofissues by Customer

< 6 months

Strategy reviews forall major contracts

Number of strategies formajor contracts (greaterthan $500k) not reviewedyearly and updated in thecontract plan during theyear

0 On time input byCustomer into thedevelopment & review ofContract strategies

Quarterly

Review Tender BoardSubmissions to ensure fitfor purpose

100%




Value for moneycontracting

Number of new contractsbenchmarked with otherDivisions/regional OU’s

100% On time input byCustomer into thedevelopment of ContractstrategiesNumber of new contracts

with incentive schemesTo be set

Number of new integratedcontracts

To be set

VFM Savings as apercentage of spend (%)

10%

Business Control Compliance monitoringplan to be produced byCP and agreed with theline

CompletedYes/No

Strict compliance withcontract execution plan

Participate in VAR 4Reviews and ComplianceAudit on Major Projects

As agreed

On time servicedelivery fromreceipt of approvedJob Request

For contracts <$100k(Minor contracts) 2

<8 wks On time registration ofdetailed workscope inCMS to enable CP toachieve process time

8 wks before contractplacement

For contracts >$100k Contractdeliveredwithinagreedcontractplanschedule

7 days upon approvalfrom relevant contractpanels

Registration of claimwith appropriatecontract panels within 7days upon receipt fromVendor and immediateclarification on issuesraised by Legal unit (ifany) and so on

For variations < 30workingdays




Overhaul Plans On time provision ofmajor overhaul spares

100%

Provision

of list of spares requiredbacked up with budgetcover

6 months beforeoverhaul are carriedout.

To enable CP deliver to the required set target,Customer must do the following:• timely identify contracting requirements• invite CP staff to planning/budget meetings• timely communication of changes• detailed work scope and product specifications(minimum and alternatives)

• technical peer reviews of work scope/specifications• participate in periodic stock reviews• participate in the annual contract performancereviews and contract close out

• technical input to local content developmentstaircases/strategies, and so on.

THE AGREEMENT:

I hereby signify agreement with the terms of this Customer Service Level Agreement (Customer SLA)

CP: EDPT

Signature: Signature:

Name: Name:

Ref. Ind.: Ref. Ind.:

Date: Date:

SERVICE LEVEL AGREEMENT

SERVICE LEVEL AGREEMENT FOR THE CORPORATE PROCUREMENT SERVICE

1.The parties

This service level agreement is between the X Department (the ‘client’) and the Corporate Procurement Service(CPS) of the Department of the Chief Executive (the ‘service provider’).

2. Effective dates

This service level agreement is effective from ‘date’ to ‘date’.It will be reviewed no later than ‘date’.

3. Coverage

The service will be provided to all departments in all locations within the geographical boundaries of the ‘specifythe name of the council’.

4. Services to be provided

1 A mechanism for governing and approving category management for procurement for the council.2 A method of simplifying and standardising Procurement and Payments processes.3 Standardisation of Benefit Realisation methodology into a common agreed approach of measurement and

reporting.4 Development and Management of Category Strategies for procurement activity within Category A, B, C and C1

McClelland definitions.5 Strategic procurement for every £ of non-labour spend6 Strategic sourcing7 Pre-market intelligence8 Directing joint virtual matrix teams in making procurement decisions.9 Category strategies for every Proclass 3 category10 Carrying out accountable, competitive and open tendering procedures in accordance with the spirit of the EU

Treaty.11 Low value contract advertising in the National web portal.12 Interpretation and adoption of European Procurement Legislation.13 Jointly preparing Tender evaluation criteria in VMTs.14 Carrying out Post-tender clarifications.15 De-briefing unsuccessful suppliers.

How to prepare Service LevelAgreementsAppendix C: Model service levelagreement suitable for use in a LocalGovernment Council


1 References and foot notes

1 Downstream Supplier relationship management strategies within VMTs.2 Providing a benefits tracking tool for hard benefits and measuring and reporting on same.3 Creating and managing KPIs and KPIs relating to the procurement service.4 Assisting in business process re-engineering to maximise procurement savings and quality of service.5 Managing and ensuring compliance with the Proactis e-procurement system.6 Producing and managing a CSR strategy which accords with corporate objectives. This includes equalities,

sustainability, the environment, health and safety, ethical procurement, Sarbanes-Oxley, prompt payment,support for local SMEs.

7 Creating category-based user intelligence groups to gather feedback from customers and stakeholders.8 Managing the service within the resources and budgets allocated.9 Procuring on the basis of most economically advantageous procurement including whole-life costs.10 Creating a communications strategy that will keep all customers and stakeholders suitably informed at all times.

5. Service availability

CPS Staff will provide the service from Monday to Friday, from 08:30 to 17:00 hrs throughout the year, with theexception of Council public holidays.

6. Duties and Responsibilities of both parties1 Commit to contributing to the governance arrangements.2 Commit to contributing to the development of each Category Management Strategy and attending the relevant

category management meetings on a regular basis.3 Commit to a single approach to benefit realisation and the reporting requirements of the procurement service.4 Provide appropriate levels of data to assist in creating category strategies.5 Commit to achieving high quality Source-to-Pay processes within the departments and the organisation.6 Continually develop and improve the efficiency of working arrangements within the Procurement Service and

the client’s own resource base.7 Strive to exceed The Procurement Service’s Standards.8 Commit to an annual review of the partnership and performance measures covered in this agreement.9 Provision of resource to assist in category strategy design and delivery of agreed procurement projects.



7. Performance measurement

The following are the key performance indicators that will be used to measure performance within the servicelevel agreement:

Key performance indicators:



MeasureType

Measure Definition Method Frequency

KPI 1. Total Savings Achieved Year on Year Benefits tracking model Quarterly

KPI 2. Customer Satisfaction Survey On-line surveys Annual

KPI 3. Supplier Satisfaction Survey On-line surveys with top 50 byspend suppliers

Annual

KPI 4. % procurement spend that is channelled through acollaborative contract

Insert details Quarterly

KPI 5(a) & 5(b) Spend with contracted suppliers(on contract)

Insert details Quarterly

KPI 6. % of KPIs that show improvement since previousreport

Manual calculation Quarterly

KPI 7(a) % of procurement officers who hold theprofessional procurement qualification, Member ofChartered Institute of Purchasing and Supply(MCIPS)


KPI 7(b) % of procurement officers with an appropriateprocurement qualification


KPI 7(c) % of procurement spend actively influenced byprocurement professionals

Financial Information System(FIS)

Quarterly

KPI 8. % procurement staff undertaking formaltraining


KPI 9. E-procurement spend penetration Various Reports Monthly

FI 1. Average Process Cost FIS Six-monthly

FI 2. Total Cost of Resources in Procurement DeptFIS revenue budget Quarterly

FI 3. Number of Procurement Staff Manual calculation Quarterly

FI 4. Procurement Department Spend per professionallyqualified staff




MeasureType

Measure Definition Method Frequency

FI 5. Procurement Department Cost per £ of spend FIS and FIS revenue budget Quarterly

FI 6. Average Spend per contracted supplier Insert details Quarterly

FI 7. Average Invoice Value e-proc IT system Quarterly

FI 8. % Private Sector suppliers with a formal contractagreement

Manual calculation Annual

FI 9. % Third Sector suppliers with a formalcontract agreement

Manual calculation Annual

FI 10. % spend with SMEs Insert details Six-monthly

KPI is key performance indicatorFI is Financial indicator

8. Performance review

Strategic Review Meetings between the client and the service provider will be held every six months to review theservice.

9. Varying the contract

Contract variations will be accommodated wherever possible. These can be initiated by either the client or theservice provider and are subject to discussion, agreement, re-costing, risk assessment, change control proceduresand a period of notice no shorter than two working weeks from the inception of the request for the change.

Any contract variation will be reflected in either an amendment to the service level agreement or in a separatevariation order, and authorised by both parties.

Performance will be monitored by the client monthly operational meetings.

Performance will be monitored by the service provider monthly operational meetings. Reports.

10. Resolving issues

Any issues or complaints that arise between the client and the service provider will be handled locally with a viewto achieving an amicable resolution.

Should the client continue to be dissatisfied, an approved complaints procedure should be followed.

Where issues cannot be settled satisfactorily, in an agreed timeframe, they can be referred to the Support ServicesReview Board for further consideration and, as appropriate, resolution.

11. Fees

The Annual Fee is a contribution to the costs of running the procurement service which is borne by alldepartments and is based on the projections of spend under the management of the procurement service.Payments are recharged annually, at the end of each financial year. The final figure may be adjusted at the end ofeach financial year to meet any variances reflecting over or underspends. The Fee will be reviewed on an annualbasis.

Where any additional services are required by, or result from, the actions of, customers, and extra costs areincurred by the procurement service, the customer will be required to reimburse the procurement service for thecosts involved. Where appropriate, an estimate of these costs will be provided and customer agreement obtainedbefore proceeding to instruct the service provider.



12.Agreement and signatures

Agreed and signed on behalf of: ………………………………………………….. (the Customer)

Signature………………………………………………………………………………

Name (printed)………..………………………..…….………………………………

Position .………………………………………………………………………………

Dated ………………………….………………………………………………………

Agreed and signed on behalf of: The Procurement Service

Signature ………………………………………………………………………………

Name (printed)…………………….….………………………………………………

Position …………………………….……...…………………………………………

Dated …………………………………….…….………………………………………



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