Appendix A8.1: Service Level Agreement Contents

Transcription

1 Appendix A8.1: Service Level Agreement Contents 11/03/2010 This section provides a practical guide to the preparation and use of Service Level Agreements (SLAs) in the context of shared services. It will be of interest to those on either the client or provider side that wishes to use SLAs as a mechanism (contractual or otherwise) to manage these services. Key issues covered in this section include: Understanding the status of an SLA and what it is designed to cover Drafting a Memorandum of Agreement and Conditions of Agreement Clarifying how to specify work, service levels and pricing schedules Defining quality and performance standards Considering ways of measuring and reporting performance Introduction: Outline Framework of Standard SLAs The form and content of an SLA is a matter for an organisation to decide. There is no standard framework for an SLA but the following provides guidance on the elements that would normally be included in an SLA: 1. Memorandum of agreement - A formal record that an agreement exists 2. Conditions of agreement - Covers all matters relating to the management of the agreement 3. Specification of work (services) - Covers all matters relating to the delivery of the service 4. Price schedule - Contains all quantitative data relating to price and cost 1. Memorandum of Agreement An MoA exists to provide a formal record of the existence of an agreement. Indicative content includes: Names of the parties to the agreement Names and position of the signatories to the agreement Name and position of any witnesses to the agreement (for legal contracts) ID reference Service Title SLA ID Agreement made [date]... Between the Purchaser [name and address]... and the Service Provider [name and address].

2 Sample SLA: payroll services Memorandum of Agreement This agreement (reference: FIN/PS/00.01, effective from 31 January 2010) between ABC Authority, Newtown, N1 1AB (the Purchaser) and XYZ Service Provider, Oldtown, N1 2OT (the Service Provider) is in respect of payroll transaction services as detailed in the statement of work and associated service level schedule. The objectives of this shared services SLA agreement for payroll services is to produce high quality and efficient payroll services for all Council employees by standardising and centralising services across all Council service areas and aims to become a world class function versus peer Councils in Scotland. The document has been approved by John Smith, Finance Director and Emma Jones, HR Director and distributed to the following Heads of Service 2. Conditions of agreement The CoA covers such issues as: payment methods, length of agreement, etc. Indicative content includes: Length of agreement Method of payment Inflation (and how it will be handled) Variations (including reviewing and updating the SLA) Confidentiality Statutory requirements Indemnity and insurance Assignment and Subcontracting Arbitration/ Dispute Resolution (and escalation processes) Communications and relationships Monitoring and liaison (including information sharing) Notice/ termination A more complex agreement would include an "Interpretations" clause, which would define any common terms to be used in the agreement in an unambiguous manner, and general clauses relating to timelines and legal jurisdiction Length of Agreement This will include: Length of agreement When provision of the services will commence from [start date] Period involved [typically, number of years] Whether the agreement may be extended [e.g. number of years] Method of Payment This clause sets out the arrangements for invoicing and payment. It will include details and wording such as: The Purchaser shall make payment by [method e.g. BACS, bank transfer etc] in [e.g. frequency of payment ie fortnightly, monthly, quarterly etc] instalments of the amounts due as specified in the Price Schedule either on [date of payment e.g. last Thursday in the month] or within 30 days of receipt of invoice.

3 Variations and Review of SLA A variations clause enables an agreement to be modified or varied once it has commenced without having to re-write the entire agreement again. If the agreement is a short one and the variation is a major one then in practice it might be quicker and easier to draw up a new contract rather than invoking this clause. A "Force Majeure" clause may also be included stating the conditions under which the agreement will be void. A variations clause may also be called a Modifications clause. Both parties may jointly agree to omit any part of the service, or provide additional services, or vary temporarily or permanently any part of the service. Such modifications will be valued where applicable according to the prices set out in the agreement Both parties will normally formally review the SLA and change as necessary either annually or after any major change in scope or process Confidentiality This clause covers the non-disclosure of information to third parties, e.g.: Neither party shall disclose to any other party any information in connection with the provision of the service or any information contained in the agreement other than in compliance with the agreed information format specified in the agreement or in compliance with the provisions of the Data Protection Act Statutory requirements This clause may be extended to cover specific statutes such as Health and Safety at Work etc Act 1974, Sex Discrimination Act 1975, Race Relations Act 1976, Data Protection Act Wording may make a general note along the following lines: Both parties shall comply with all statutory requirements relating to the provision of the service and where applicable national Codes of Practice or British Standard Specifications. Indemnity and insurance Indemnity covers compensation for loss and injury. A complex agreement may specify the value of cover that the service provider will have to insure for against the risks of injury to persons or damage to property. Example text would be: The Service Provider shall be liable for and shall indemnify the Purchaser against any liability, loss, claim or proceedings arising under any statute or at common law in respect of any damage to property or persons; any injury to persons including injury resulting in death; and any claim from a service user, or other person acting on behalf of the service user, except where this is due to any act or neglect on the part of the Purchaser or of any person for whom the Purchaser is responsible. The Service Provider shall insure fully against its liability in such sum and on such terms as the Purchaser may reasonably require. Assignment and Subcontracting This clause covers the transfer of liability for the provision of a contracted service from the provider to a third party. Subcontracting normally requires the prior written permission of the purchaser), e.g.:

4 The Service Provider shall not transfer or assign this agreement and shall not subcontract the provision of the service without the prior written permission of the Purchaser, such permission to be not unreasonably withheld. Arbitration This clause sets out the procedures to be followed if there is a dispute between the parties. It may also cite a third party to whom parties will turn, e.g.: A dispute which the parties cannot resolve will be referred to [name of arbitrator] for settlement. Communication and Relationships This clause is a formal reminder to both parties to agree a system for regular communications and roles & responsibilities. Monitoring and Liaison This clause is a formal reminder to both parties to agree a system for monitoring the agreement; for example: The parties to the agreement will be required to jointly implement and maintain a system for monitoring this agreement within [period, e.g. 3 months from commencement of the agreement] The Purchaser shall nominate an Authorised Officer to act in its name for the purpose of the agreement and the Service Provider shall similarly appoint a Contract Manager Both parties agree to share the following data in order to ensure optimal performance is achieved and lessons are learned to continuously improve (list types of data, contents of reports etc). Interaction between the parties will be defined in the communications and relationships section and details of performance measures will be contained in the KPI and service level schedules (within specification of work section). Issues and Escalation Process This clause is a formal reminder to both parties to agree a system for issues handling and escalation process. Notice This clause covers termination of the agreement. A notice clause may also be called a "break" clause, e.g.: Either party may terminate the agreement by [insert period of notice e.g. 6 months] in writing. Neither party shall have claims against the other arising out of the termination of the agreement. 3. Specification of Work (including Service Level Schedules) This will include details such as: Context Services to be provided Performance Measures Method Statement Environment Context - the background and context of the service Systems Service - the IT related service to be provided Output Performance - the standards and quantity of activity or workload Process Procedures and tasks

5 Input Resources - the labour, materials, data and assets required Feedback/Control Monitoring Context This will explain who the purchaser is, such as: The Purchaser is a local authority with a resident population of 300,000 and covering an area of 150,000 hectares. Services to be provided This will set out which services will be provided, explaining clearly which activities are in and out of scope. Where necessary, processes will be broken down (perhaps diagrammatically, as shown in the main guidance report, Section 5), to show splits of responsibility; for example: The Service Provider shall provide payroll services to include the payment of salaries and wages, administration of the Pension Scheme, processing of employee expense claims, and administration of the flexible benefits scheme. The agreement excludes the provision of communication links to systems other than payroll: these are the subject of a separate Information Systems SLA The Purchaser and the Service Provider shall jointly prepare an annual Service Improvement Plan. Approval of the plan will constitute a variation to the agreement. Performance standards to be achieved This will reflect the services and processes within scope. For the payroll example, this might include: 4500 payslips are to be processed each month Pension advice is to be provided to 3000 members of staff who are members of the occupational Pension Scheme expenses claims are to be processed monthly Call related enquiries will be responded to within 30 seconds and all written enquiries within two working days The Service Provider will implement and maintain a documented procedure for handling user complaints Pay reports will be provided to the Purchaser within 5 working days of the period end A continuous service will be provided within the hours of 9am to 5pm Monday to Friday. A voic service will be provided outside these hours An error rate of less than 0.25% of payslips processed will be achieved in the first year of the agreement, reducing to 0.10% by the end of year three. Method Statement The Service Provider will set out in a Method Statement the detailed manner in which it proposes to undertake in-scope work tasks. Continuing our example: Maintain documented Standard Operating Procedures for all payroll tasks Establish and maintain all computerised and manual pay records Validate checks on all input documents including starters, leavers and amendments Calculate and process all weekly and monthly payrolls from gross to net pay Administer pay awards, SMP, SSP, bonus, overtime, and travel and subsistence expenses Pay employees by BACS Maintain statutory documents P45 and P60

6 Submit statutory year end returns to HM Customs & Excise Maintain an auditable system including control accounts, suspense accounts and reconciliations All employees will maintain a level of professional competence in accordance with membership of the Association of Payroll and Superannuation Administrators (APSA) or an equivalent qualification The Purchaser will be responsible for the purchase and requisitioning of timesheets The Service Provider will be responsible for all other resources and facilities required for the provision of the service. The Service Level Schedule The Service Level Schedule is one of the key components of the SLA. It documents in detail the specific activities, service levels and target performance levels that constitute each service item, and the reciprocal activities required of the customer and service provider to enable this to happen (sometimes referred to as the Operational Level Agreement) An HR example for a service item could be Process Payroll Run. Typically the schedule document is divided into sections according to function (Finance, HR etc), with a number of service levels per function depending on the scope of services on offer. The Service Level Schedule documents all the important activities and performance levels that constitute the service to be provided. Service Level Components This may include: Service Item a clear description of the activity to be conducted by the supplier, and which can be effectively measured via the service level Key Performance Indicator (KPI) Service Level KPI a metric to measure performance of the service. OLA (Operating Level Agreement; sometimes referred to as a reverse SLA ). This describes the actions that the customer must carry out in order for the service provider to supply the service If the OLA is not carried out, the service provider cannot be held accountable for non-performance of the related service level. The OLA recognises the fact that service providers cannot provide a service unless the required data, inputs and authorisation. In the case of an internal shared service centre, it can be difficult to get the customer interested in meeting OLA obligations, particularly in the absence of hard penalties. If this occurs, educating the customer on the performance implications of their shortfalls can be constructive (i.e. failure to deliver an OLA causes poor quality of service). Target Performance indicates the level at which the KPI should be performed to meet the service expectations of the customer. The Target Performance level may be higher than currently achieved by the service provider to encourage higher levels of performance. In the case of an internal shared service centre, it can be difficult to get the customer interested in meeting OLA obligations, particularly in the absence of hard penalties. If this occurs, educating the customer on the performance

7 implications of their shortfalls can be constructive (i.e. failure to deliver an OLA causes poor quality of service). Target Performance indicates the level at which the KPI should be performed to meet the service expectations of the customer. The Target Performance level may be higher than currently achieved by the service provider to encourage higher levels of performance. Where the customer provided the right inputs, and the service provider fails to meet target performance levels, the incident or issue should be flagged for rapid resolution and reported as a service accuracy or timeliness issue. If the nonperformance continues, this may lead to service credits penalties or even termination depending on contractual terms. The significance of performance failures should be documented in the Issue Management/ Performance and Charging sections of the SLA 4. Price Schedule The price schedule sets out all quantitative data relating to price and cost. Putting together a price schedule requires the organisation to: Determine the level of costing detail required Choose a pricing policy Understanding costs The minimum requirement is for the total cost of the agreement in the first year of contract. This cost should be quoted inclusive of inflation. Cost and service breakdown It may also be important to know how total cost is built up. This can be broken down between direct and indirect costs: A direct cost is a cost which can be directly attributed to a service An indirect cost (or overhead) cannot be directly attributed to a service. Cost and activity It may also be important to know how costs will respond to changes in activity in the short-term. If so, a breakdown between fixed and variable costs will be needed: A variable cost varies in proportion to an in-year change in activity A fixed cost is unaffected by an in-year change in activity Pricing Policy In public services, pricing will often = cost where purchasers/customers are simply recharged for the cost of the service. The price charged therefore equals the cost incurred in providing that service, not on what the market can bear, nor on some predetermined national standard, nor does it include an element for profit. Issues and options to consider in pricing a service include: Cross-subsidisation - Whether services should be costed and prices charged to others on the same basis. Steering clear of cross-subsidies helps to avoid market distortions caused by the deliberate raising or lowering of prices (such as "loss leaders")

8 Marginal cost pricing - Price can be based on marginal cost (additional cost of providing an extra unit of service) instead of full cost when pricing, where surplus capacity exists in the provider organisation Discounts - The use of a discount conflicts with the basic financial objective to breakeven. A discount, in the sense of a reduced price for additional activity, is the same as marginal cost pricing. Services provided to private sector bodies will generally be determined according to market rates subject to any relevant legislation. Summary of Relevant Charging Options in Shared Services The type of organisation supplying the service will determine which charging models are more appropriate, dependent on individual circumstances. Service Level Schedule Success Factors Some key things to remember are: To keep it simple: Ask why a Service Level is necessary. What is the rationale? Is it really important to the organisation that this is measured and monitored? For example, a 24/7 availability guarantee may be unnecessary where staff are unlikely to access systems after midnight To simplify the Service Level Schedule, care should be taken to avoid doublecounting. The key guiding principle is focus on measuring service level outputs, rather than the interim steps of a process Not every activity needs to be documented by Service Levels. Other parts of the SLA document (e.g. Split of Responsibilities Schedule or Agreement Principles) provide information on obligations that do not need to be duplicated by the service levels. CIPFA 2010 For more information, visit