AS SMEs outsource more IT operations, it is important that they understand the role and function of service-level agreements (SLAs) to create a framework for a sustainable relationship with service providers. SLAs define the standard or level of service a business can expect from a provider.

Services covered by such agreements can vary from IT support such as accounting and finance systems and human resource and payroll systems, to IT maintenance such as hardware and networks and hosting services.

Define service levels

Depending on the nature of services, service levels can be defined using measures like up-time, response and resolution times. When services are provided continuously, such as hosting services, service levels are typically measured with reference to the period the service is available, such as 99 per cent up-time.

In contrast, for services provided on demand, such as problem resolution, service levels will be measured in terms of time taken to respond to a request for service and time taken to resolve the problem.

When defining service levels, it is important to realise that service-level specifications need to be sufficiently detailed to be effective. Clarity in specifications will help both SMEs and service providers determine their responsibilities and expectations when deficiencies occur.

Put in quantifiable measures

As far as possible, vague phrases like 'best efforts' and 'prompt response' should be avoided in service level specifications. Instead, quantifiable measures should be stated. For example, a service provider must respond within two hours of an incident report and resolve the problem within four hours of the report. SMEs that need faster response times than their stated SLAs may be charged more depending on urgency of their request.

Frequently, different service levels are prescribed for different types of problem. Typical categories are: critical, major and minor. Each will have different response and problem resolution times specified in an SLA. The number of problem categories and their specifications will depend on business requirements and industry practice, and is often agreed through negotiation with the service provider.

Build in incentives and safeguards

When defining service levels, SMEs and service providers also need to consider what happens when service levels are not met. This is important because SLAs usually involve a degree of operational outsourcing, and SMEs depend on these services for the duration of the contract.

It is, therefore, necessary to build incentives and safeguards into an SLA to ensure the service provider complies with the agreement and works towards a long-term relationship.

One frequently used measure is a system of service-level credits. If a service provider fails to meet specifications in an SLA, the customer is given service credits that serve as a form of liquidated damages.

Implement review structure

Another useful measure is to implement a structure for regular service reviews. This brings together management-level representatives from service providers and SMEs, providing a structure for dispute resolution. It allows operational issues to surface and be resolved at the right level, preventing minor issues from snowballing into major disputes.

Maintain a sustainable relationship

It is crucial that both SMEs and service providers spend sufficient time and resources negotiating an SLA before the start of the contractual relationship. This will be time well spent, as it is the vital first step towards building a framework for long-term collaboration and dispute resolution.

This article was contributed by Yeong Zee Kin, an IT committee member of The Law Society of Singapore, from Rajah & Tann LLP Transnational Legal Solution

Infocomm Public Education for SMEs

There is a notable rise in the adoption of infocomm security measures by enterprises. Virus Checking or Protection Software (57%) is the most pervasive measure adopted by enterprises, with Anti-Spyware Software (45%) and Firewall (44%) the next two most commonly deployed measures.

This article was first published in The Business Times on April 29, 2008.