Service level agreement

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Negotiation Anatomy™

A fifteen-year-old with a mop and a bucket, yesterday.

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A service level agreement (“fondly” known as an SLA — that is an ess-ell-aye, not a “slah”) defines the level of “service” you expect from a vendor, laying out the metrics by which the service is measured, and your remedies and penalties should agreed-on service levels not be achieved.

Conventional wisdom: It is a critical component of any vendor contract.

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 Hayeks of economic history). Your service provider has agreed a fixed fee for its services, it is his sole and constant interest to expend as few resources as are humanly possible to earn that fee.

The difference between the fee and those resources 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


  1. This won’t stop middle management trying to impose one, of course.
  2. 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 a crowdish delusion that it is somehow different.