Service Level Agreement (SLA) credits

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  • #292043

    I am in need of some benchmarks on Service Level Agreement (SLA) credits or penalty “at-risk pools” set aside by the vendor. What dollar amount or percentage of total vendor cost, is put up for the SLA credit/penalty “at-risk” pool, for major vendors?

     

     

    #292668
    Anonymous
    Guest

    It ranges from 6 to 18% at risk, with 8% being about the lowest one should settle for. 14% would be a number to be proud of, but you wouldn’t be ashamed of 12%.

    This isn’t where the value is in SLA negotiations is though. The value is in how the metrics percentages get allocated and the flexibility around that allocation. You’re better off with a 12% at risk pool, with a 300% aggregate allocation amount, than with an 18% at risk pool and a 200% allocation amount. Once you have a good allocation aggregate, the next thing to go after is not having any ceilings on individual metrics, and then the ability to change the metric allocation with 30 days notice. This allows you to move to a 100% percentage on a problem metric and still have 200% left over for the rest of them. This is particularly handy in smaller environments.

    The other place to be careful is making sure that in percentage metrics (such as availability) the denominator isn’t so inclusive that you can suffer very large outages without repercussions. This happens a lot in global deals where you have a global metric that can be met, but local areas can be down for days before there’s an SLA miss.

    #292669
    Anonymous
    Guest

    We expect 8-12% of monthly revenues (net of pass thrus)

    #292670
    Anonymous
    Guest

    At risk amount for Tier 1 vendors vary from 5-15%. The vendor usually includes this amount in their price (without explicitly calling out) and apply a probability of occurrences for their margin calculation. This % depends on the type of service (development/ maintenance/ support etc), competition for the deal, value of the deal, SLA limits etc. if you would like, I can get on to a call or meet in person (if you live in NJ) and explain. This is one of the tricky discussions buyers have with vendors. So detailed preparation is required before you negotiate.

    #292671
    Anonymous
    Guest

    For a multiyear outcome based IT outcome based deal with one of the top 3 Indian IT providers, we settled on 15% supplier revenue at risk with a 200% at risk pool % (suppliers will offer 10% without putting up too big a fight). We also provided the supplier the opportunity to earn back any revenue lost if they meet or exceed the impacted SLA for 3 consecutive months following the miss.

    #292672
    Anonymous
    Guest

    Ours typically range from 2-5%

    #292673
    Anonymous
    Guest

    In HR Services, I have seen everything from 2%-10%. 5% is a good rebate depending on the spend if they fail to meet SLAs.

    #292674
    Anonymous
    Guest

    Industry standard for most SLA’s is 15 to 20% of the total contract bill per month. This amount is normally a lever for negotiations and is reduced before the contract is signed. Contracts should have a mix of SLA’s and SLO’s, SLO’s provide visibility of performance without fee credit. There is also a industry move to create fewer SLA’s and more SLO’s. The threat that is imposed on the vendor is the loss of the current contract and no future contracts awarded. This deterrent is strong enough to ensure most vendors perform to the SLO/OLA standard. This model works well if your work has been multi-sourced. There should be less risk to your company if you needed to cancel a contract with a vendor, other vendors can take on the additional workload.

    #292675
    Anonymous
    Guest

    Really need more info on what kind of deal (i.e., BPO, ITO – infrastructure vs. app dev, etc)

    Generally, the concept is designed to put the provider’s “profit” at risk for poor service. I usually consider EBITDA as a general benchmark. The provider should never be penalized beyond profit (short of breach or fraud) otherwise service and relationship will deteriorate and defaults will not be resolved on a sustainable basis.

    As a former advisor with the firm that created this concept, the RFP default was typically 12-15%. This is just one of many SLA and pricing levels that have to be considered in the aggregate. So, this at risk % will be negotiated against the give and take of other levers. I saw these land at typically 10-12% on final BPO deals.

    #292676
    Anonymous
    Guest

    Although the specific SLA penalties probably depend on the circumstances, in general, the SLA penalties I have seen are 2-5% of the amount of the invoice for the period when the SLA was missed for the first failure, 2-6% for the second failure and 8-10% for the third.

    #292677
    Anonymous
    Guest

    For IT services deals the industry standard is between 15% and 20% of the annual fee at risk for SLAs. Earn-backs and other factors can complicate that a bit, but it’s the “standard” cap that I’ve seen across dozens of contracts and benchmarks.

    #292678
    Anonymous
    Guest

    We typically see 12-15% of monthly fees at risk with a multiplier of 250-300%.

    #292679
    Anonymous
    Guest

    We generally use tier model and the incentive and penalty mostly varies within +3% to -3% of the contract value. There are some exceptions though.

    #292680
    Anonymous
    Guest

    Usually 10-15% of fees and it might keep going up if the issue persists until another clause is triggered such as non performance.

    #292681
    Anonymous
    Guest

    Generally 10% of spend

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