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Additions, Deletions, and Modifications to Service Levels

Most service level agreements will include a process for adding, deleting, and modifying service levels over the course of the relationship.

■ Additional service levels can typically be added to a service level agreement after a period of time has passed (e.g., six or twelve months). Where the parties are unable to agree to the level of performance required for the new service level, a methodology will be included in the service level agreement. For example, the parties could agree that the service level will be defined as the average of service measurements for the most recent three consecutive calendar months that the supplier has been providing the particular service. Where historical data does not exist, the parties could agree to measure the service for a specified period of time and then, at a later date, determine the appropriate service level by working together to assign the service level or, where appropriate, by taking an average of the data collected over the measurement period. In cases where an allocation pool is used to determine performance credits, as discussed previously, the pool would require redistribution in order to accommodate the new service levels.

■ Customers typically have the right to delete certain service levels, also after an agreed-upon period of time (e.g., six months after the effective date). In cases in which an allocation pool is used to determine performance credits, as discussed previously, the pool would require redistribution in order to accommodate the deletion. The customer would typically be able to redistribute the allocation in its discretion and following any guidelines agreed to by the parties (e.g., maximums and minimum allocation parameters).

■ In many cases, it is also appropriate to include a procedure for the customer to modify the allocation pool across the service levels. Where a two-tiered service level structure is used (i.e., using key performance indicators that typically wouldn’t carry performance credits and critical service levels that typically would carry performance credits), this procedure would also include a process for the customer to “promote” key performance indicators to critical service levels. Ute customer’s ability to modify the distribution of the allocation pool and to promote key performance indicators to critical service levels is commonly limited to during the term (e.g., no more than twice annually during the term). In the event of modifications to the allocation pool, any agreed-upon minimums and maximums would continue to apply. In the event of a promotion of a key performance indicator to a critical service level, the customer will need to redistribute the total allocation pool across critical service levels to ensure that the total does not exceed the total performance credit allocation percentage.

Earn-Back

In some transactions, it is appropriate for the supplier to have the opportunity to be repaid, or “earn back,” performance credits that were paid out to the customer for the supplier’s failure to provide the services in accordance with the service levels. If an earn-back opportunity is appropriate, it is essential that the service level agreement include a procedure with respect to how the supplier can achieve the earn-back.

■ Consider whether the earn-back opportunity should apply to all of the service levels or if certain service levels (like the service levels that measure the most critical services that the supplier is going to be providing or service levels that measure the services being provided at critical times like, in a hosting transaction, availability of applications during peak periods) should be excluded from the supplier’s opportunity to earn back performance credits.

■ At the end of a measurement period (e.g., at the end of each year), the supplier must be required to report on at least the following information:

  • - Hie supplier’s actual average monthly performance during the measurement period.
  • - The number of months in the measurement period that the supplier met or exceeded the required service level.
  • - The yearly performance average for each service level.
  • - The total amount of performance credits accrued and credits for service level failures.

■ If the yearly average for a service level meets or exceeds the required service level, then the supplier may be relieved from paying any performance credits that would otherwise be paid for the particular service level.

■ If the yearly average for a service level falls below the required service level, the supplier is required to pay all performance credits due to the customer within a specified period of time. Payment of performance credits could come in the form of a credit on the next invoice sent by the supplier to the customer, or if there are no further invoices to be issued, a monetary payment should be required.

Form of Service Levels

Included below is a commonly used approach to mapping service levels in a service level agreement. While many forms of service levels are appropriate, it is essential that each service level contain all of the necessary information with respect to the service level such as the title of the service level, the measurement window, the actual service level (or in the example below, the expected service level and the minimum service level), the calculation for how the service level is derived, and any additional information or description that will aid the parties in meeting, exceeding, and calculating the service level.

No.

Title

Performance Credit Allocation Percentage

Description

Service Level

1. Mainframe computing operations

C1.1

Mainframe production environment availability

10%

The availability of the mainframe production environment as described in Exhibit E.4.a (mainframe applications portfolio), in each calendar month

Measurement window

Expected service level

Minimum service level

Calculation

Calendar month

  • 99.98% or greater availability or greater in each calendar month
  • 99.96% or greater availability or greater in each calendar month

Availability of mainframe production environment in each calendar month

2. Distributed computing operations

C2.1

System high availability

10%

The availability of each OS instance—high availability as described in Exhibit E.4.d (server architecture standards) in each calendar month

Measurement window expected

Service level

Minimum service

level

Calculation

Calendar month

  • 99.97% or greater availability in each calendar month
  • 99.95% or greater availability in each calendar month. The availability of OS instances—high availability in each calendar month

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A Guide to IT Contracting

Summary

If used properly, service levels can help to ensure that a supplier’s delivery of services meets and exceeds customer’s expectations. Tire pricing structure of many IT transactions assumes a specified level of performance. If the supplier’s performance of the services fails to meet the customer’s expectations, as articulated in a service level agreement, a performance credit structure can help to ensure that the customer is only paying for the value of the services actually received. To that end, service levels can help incite and maintain supplier performance. To work appropriately and fairly to both parties, a detailed process and procedure should be implemented to ensure the appropriate application of service levels to a customer’s commercial transactions.

 
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