Wednesday, 4 November 2009

Outsourcing service level agreements - how to draft (maybe!)

There's a University at Buffalo news release about a (not free) article The Role of Service Level Agreements in Relational Management of Information Technology Outsourcing: An Empirical Study published in MIS Quarterly written by Jahyun Goo, Rajive Kishore, H. R. Rao, and Kichan Nam (based in the USA and Korea), who studied Service Level Agreements (SLAs) between IT outsourcing vendors and their clients.

This study expanded on previous research - "refuting the notion that contracts are antithetical to trust", "They found that the more detailed the SLA, the greater the degree of trust and commitment between the two parties."

According to the news release:

"The very process of crafting detailed SLAs works to build and reinforce trust between clients and vendors, according to the researchers. Also, both parties know what behaviors to expect from each other during the course of delivery on the outsourcing contract.

However, a unique insight of the study is that it is better not to be too specific in the SLA with respect to clauses that deal with anticipating and planning for contractual changes.

"Attempting to specify all potential changes and change processes through complex clauses in the contract only serves to tie the hands of the two parties," says Kishore. "This may reduce the trust of the two parties in each other."

All contracts have an element of uncertainty, according to Kishore. "Contractual changes to deal with uncertainty can be most effectively implemented through an adaptive process of negotiation," he says. "This way, mutual give and take can occur across the table rather than through detailed, standardized clauses specified in the contract.""

In other words, be detailed enough in your documentation to make it very clear what each party expects of the other, but don't be too detailed about what future changes to the contract should be, or how any changes should be made - just negotiate changes to the contractual terms as and when needed.

That seems common sense, even the finding that you shouldn't be too specific about prescribing the details of future changes. As long as you discuss the original details and the proposed changes amicably and constructively based on a win win objective, anyway.

If parties could trust each other absolutely, always, and had no misunderstandings about their mutual expectations, it wouldn't be necessary to have any contracts or legal agreements at all. But of course, life isn't like that.

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