Offshore Outsourcing – SLAs that are enforceable

March 31, 2016 11:48 am | Updated 6 months ago.

By Arup Gupta

It is essential to clearly define the Service Level Agreements (SLAs) for any outsourcing engagement, and more so for offshore outsourcing engagements given the inherent uncertainties due to distance, different time zones and also cultural differences.

However, in many instances with an attempt to address all possible uncertainties associated with offshore outsourcing, the clients often land up with SLAs that are either too complex to understand or are too broad to enforce.

To be able to effectively communicate with the offshore vendors and be able to manage the offshore engagements properly, the Clients should have SLAs that are simple and are objective.

Before discussing, how to formulate simple and objective SLAs, let us look at the type of work that is typically outsourced in the IT space:

  1. Infrastructure outsourcing: This typically includes support for hardware, system software, network and networking equipments.
  2. Data Center outsourcing: This typically includes outsourcing of all data center related activities including data security.
  3. Application Development outsourcing: This typically involves outsourcing of development of a set of applications meeting the requirements specified by the customer.
  4. Application maintenance outsourcing: Here the vendor is responsible for ensuring that the existing applications of the customer continue to run without any interruptions and in most cases certain enhancements and upgrades to system software etc., are included in the scope.
  5. Application migration outsourcing: Here the vendor is responsible to ensure that the application continues to run properly in the new hardware or software environment specified by the customer. In most cases, certain enhancements and performance improvements are also included in the scope to take advantage of the new environment to which the application is being migrated to.
  6. Business Process outsourcing: Here the vendor is responsible to ensure that the concerned business processes continue to run properly without any interruptions or any major change in the workflow.

Clearly the SLAs associated with each category of outsourcing are very unique and any attempt to construct a Master Services Agreement where SLAs for each category are defined under one umbrella contract will lead to lack of clarity and, hence, enforceability.

Here are some of our recommendations for bringing clarity and objectivity to the SLAs relating to an offshore outsourcing engagement:

  1. Identify clear deliverables for each category of engagement being outsourced and define SLAs for the individual deliverables.
  2. Get an agreement with the vendor on the SLAs, prior to putting the SLAS into a contract.
  3. Do not set unreasonable targets for the SLAs, expecting that even if there is some slippage by the vendor, still the SLAs will be within the acceptable limits as far as you, the customer is concerned. This is because, once a target is set, any sensible vendor will try to define their processes and measurements to achieve the specified targets and an unreasonable target will result in frequent breakages in the underlying processes and measurements causing more disruptions and hence lower SLA adherence.
  4. The customer and the vendor need to work together to analyze all the underlying factors before agreeing on a target for the SLA. For example, if the target is to bring an application up within 4 hours in case of any abnormal termination, then all the factors like how soon the incident is communicated to the vendor personnel, availability of vendor personnel, availability of client personnel, availability of the required infrastructure etc., needs to be analyzed and factored in.
  5. Having set a reasonable target for the SLAs, put in place a reward mechanism where a vendor is incentivized for delivering better SLAs than the specified target. The rewards need not be financial and could simply be points that are accumulated to offset and penalties for slippages, maybe on a quarterly basis.