Service level agreement
|
Negotiation Anatomy™
|
A service level agreement (“fondly” known as an SLA — that is ess-ell-aye, not “slah”) defines the level of “service” a customer should expect from a provider of services, laying out the metrics by which the services are measured, the customer’s remedies and any penalties the provider must pay should agreed-upon service levels not be achieved.
Conventional wisdom: It is a critical component of any service contract. It is a critical component because any provider of services without meaningful disposition of good faith and loyalty to the customer will automatically do the absolute bare minimum literally required to discharge its formal legal obligations. The way we have let our commercial environment drift over the last 40 years — there are plenty of essays on this site about that — means we should expect the cheapest-to-deliver whenever there is an option. An SLA is designed to ensure there is no option.
Thus, in a stroke, the SLA demonstrates the folly of outsourcing: an employee may be expensive, truculent, workshy and in need of holidays and a pension, but (at least in theory) to get a decent job out of her you don’t need an SLA:[1] the better the job she does, the better she’ll get paid. [2]
But once you have outsourced the role to an agent for hire in the free market, that calculus, however delusional, changes for the worse.
Now, unless you are a fool, your starting assumption must be that a paid agent will do as little as he humanly can to comply with the most pedantically literal possible reading of your agreement. To do a stroke more is economically irrational (so sayeth the Smiths, Friedmen and von Hayeks of economic history). Since a service provider is agreed a fixed fee for services, it is his sole and constant interest to expend as few resources as are humanly possible to earn that fee.
This is to cast no aspersions upon the contracting class: it is a service buyer’s sacred mandate from her private equity overlords to pay as little as she can possibly get away with. Since the end of history, shrinking the bottom line rather than growing the top one has become the dominant lever of profitability. This is to do business by sneaking an early goal and then putting all 10 outfielders in defence for the remainder of the game.
Just as a customer wants to reduce costs, the service provider must maintain margins: if his top line is coming down then surely so must his bottom one. Since the difference between the two is his profit margin. A free agent is exclusively focused on what it does not have to do. This, and only this, is what he turns up for.
Thus, you must have an SLA. You must stipulate in tortuous detail exactly how, when, with what implements and at what rate, your service provider must provide the services. You should expect it to do not one micron more than that.
If you outsource a cleaning contract for a five-thousand seat tower block in the CBD, assume your service provider will roll up with one minimum-waged fifteen-year-old, a mop and a plastic bucket UNLESS YOU HAVE AGREED OTHERWISE IN AN SLA.
But yet there is more, for whomsoever your vendor does send along — whom you should assume will be the cheapest-to-deliver unit for whatever level of service you have contracted for — will enjoy precisely the same fundamentally disinterested relationship with her contracting counterparty — your vendor — as it does with you. So you have a human who couldn’t give more than a salutary wave about the performance standard she owes her principal, who is maximally incentivised to do as little as it humanly can to limp over the threshold of your minimum performance standard.
A cosmic agency problem
This is, of course, simply an articulation of the age-old “agency problem”. Yes, it is true: an employee is also an agent, but at least she has a notional duty of good faith and some kind of gravitational proximity to her employer that at least bends her trajectory towards its better interests. Now let us extend that cosmological metaphor. If an employee directly orbits her employer’s sun, even though an agent and thus always running at some kind of tangent to her employer’s best interests she can at least be predicted, and that errant course is largely pulled around by the employer’s gravitational mass. An outsourced contractor, by contrast, is an agent thrice as far removed. He orbits a different satellite altogether (his contracting service provider), which in turn orbits that employee in minute epicycles so, from the point of view of the best interests of the, ah, stellar employer, his trajectory eccentric.
See also
References
- ↑ This won’t stop middle management trying to impose one, of course.
- ↑ IN THEORY. OK, folks: I know it doesn’t really work like this (GOD KNOWS I know that) — since either side egregiously welches on that bargain — but the collective is often gripped with a madness of crowdish delusion that it is somehow different.