Drake andamp; Scull’s Scott Wilson discusses service level agreements (SLAs).
Service level agreements form the backbone fo the relationship between a client and service provider. Getting them right is critical to the satisfaction of each party. Scott Wilson, managing director of Dubai-based Drake & Scull Facilities Management, elucidates.
Properly constructed service level agreements (SLAs) and performance measurement criteria are an essential component and tool for effective operations and maintenance management of buildings and facilities. Facilities management by definition encompasses a wide range of diverse services with varying demands and needs. These require not only precise definition but also integration and alignment with both clients’ and service providers’ expectations and operational realities.
Being a service-based industry, facilities management requires recognition that the management of relationships and expectations is central to optimising the FM delivery process. The application of properly developed and structured SLAs is a key management tool to achieve these objectives. Facilities management SLAs, by definition, are therefore substantially different in purpose and objective from traditional commercial contracts.
Unfortunately, given the emerging and relatively immature status of the FM industry in the UAE and Middle East generally, SLAs and performance measurement criteria are not being properly developed or utilised. This is to the detriment of both the client and the FM service delivery process.
Unfortunately, given the emerging and relatively immature status of the FM industry in the UAE and Middle East generally, SLAs and performance measurement criteria are not being properly developed or utilised. This is to the detriment of both the client and the FM service delivery process. It leads inevitably to a range of problems including: misalignment of expectations by the various parties to FM contracts; inadequate definition of service specifications, including quality standards; inability to effectively compare FM tenders on an ‘apples for apples’ basis; and consequent disputes and dissatisfaction with the service delivery process.
Too often, FM requests for proposals (RFPs) are prepared and issued on behalf of clients by consultants that are neither conversant with nor experienced in the requirements for FM service contracts and service deliverables. Many of these RFPs tend to be based upon construction and project management-type contracts, which are not applicable to the FM industry. The use of a ‘bill of quantities’ kind of specification is inappropriate for FM contracts. Similarly, these types of RFP often lack basic details on issues such as asset registers, asset condition, maintenance, service frequencies and service needs.
However, specialist FM service providers have developed agreements that are focused on the real requirements in specifying and measuring FM service delivery and service performance. These agreements are more appropriate to all parties than many of the FM contracts currently being used in the UAE and Middle East.
An SLA is a negotiated agreement designed to create a common understanding about expectations, the nature of the relationships, services, specifications, roles and responsibilities, performance measures and price/costs.
The SLA can therefore be seen as:
* a mechanism to define service specifications;* a communications tool designed to prevent misunderstanding and thereby avoid or alleviate disputes;* a mechanism to determine the quality of the services in a measurable manner;* a mechanism to determine the performance measurement criteria;* a mechanism to define the roles and responsibilities between the relevant parties.
It is important to note that SLAs differ from your normal commercial agreements in that they are often part of an outsourcing agreement. This means that the typical SLA is set up as an operational relationship as opposed to a legal relationship. Furthermore, and most importantly, this agreement is a living document and should be used as an operational manual – or used in conjunction with operational manuals and service specifications – and as such should be referred to constantly at all levels in the contractual relationship.
Thus SLAs facilitate a successful relationship by: enabling the effective management of the various parties’ expectations; providing a framework for the management of the relationship; providing effective dispute resolution procedures; defining the service specifications; implementing appropriate performance measurement systems; and being flexible enough to, at all times, reflect the true nature of the relationship and the content of the relationship.
Expectation management
Any relationship will only succeed if all the parties get from the relationship what they expect. It is accordingly necessary that each party should know what its own expectations are and what the other parties’ expectations are. The SLA is an ideal tool to identify and record the expectations of the parties. And it is beneficial and critical to the success of all parties concerned to develop jointly the SLA. Such a joint development process will ensure that the service provider and the customer will become acutely aware of the requirements and expectations of the other party. It is far more effective to sort out differences in expectations and to align party expectations prior to entering into the SLA than to try and resolve misunderstandings and disputes at a later stage.
Effective dispute resolution
In view of the nature of an outsourcing relationship, it is fairly certain that disputes will arise between parties during the currency of the relationship. It is therefore advisable that the parties should acknowledge this fact and that an appropriate dispute resolution procedure should be built into the agreement. Effective dispute resolution procedures will take account of the fact that within the FM arena different problems will arise and will require different resolution mechanisms. Provision for a tiered resolution process is therefore recommended in FM SLAs.
Relationship management
An outsourcing relationship will only be successful if all parties manage the relationship. The SLA can assist in the management of the relationship by establishing the framework within which the outsourcing relationship can be managed. For instance, an appropriate governance structure, management principles, operating procedures and specifications can be recorded in the SLA.
Far too often, service specifications are too vague and poorly defined and do not therefore reflect either the services required or the real intent of the parties.
Service specifications
A key component of an SLA is the specification of the services to be provided. This should relate not only to the definition of such services, but also, for example, to the frequency and quality criteria for such services. It is important that the client, service providers and subcontractors interact to develop clearly defined service specifications. Far too often, service specifications are too vague and poorly defined and do not therefore reflect either the services required or the real intent of the parties. Similarly, clearly defined service specifications will make cost comparisons easier to assess and monitor.
In addition, unless you have clearly defined specifications it will not be possible either to define objectively or to provide mechanisms for performance measurement. There are a number of options that can be considered in the definition of service specifications, which essentially revolve around whether they are output- or input-based. This is a substantive topic and needs to be addressed in the SLA review process at the strategic level.
Performance management
An essential part of any SLA, and especially of FM agreements, is the performance measurement and accountability provisions. Unless there are consequences for a failure to meet agreed service levels, the effectiveness of such agreed service levels is undermined. Too often, these provisions are left out or given minimal attention. This is to the detriment of all parties.
Performance management provisions form the last layer in the definition of services. Service level descriptions form the foundation for these provisions on the basis that one cannot monitor and manage performance if the services and service levels have not been adequately defined. The performance measures are therefore closely tied to the manner in which the service levels are defined, being dependent on whether an input- or output-based approach is used.
Depending on the type of service provided, performance measurement may relate to such issues as:
* availability, which measures the proportion of the time the service is normally supposed to be fully available measured against the time it is actually available;* reliability, which measures how often the normally available service is withdrawn due to errors, and so on;* response and restore times, which measure the delay between a request for a service by a user and when the vendor provides the service or resolves the problem;* productivity, which measures the delivery rate to be achieved for the level of chargeable resource consumed;* compliance, which measures the compliance by the service provider with the input-defined service levels, usually expressedas a percentage.
It is important to review these performance criteria in depth, at both the strategic and operational levels, prior to committing to such criteria in the formalised SLA. The views and opinions of the service providers should be requested and considered during this process. The reason why this should be reviewed at the outset is because each category will have an attendant cost, which may be acceptable or prohibitive to a client. A one-hour response time, for example, will attract a higher cost than a 12-hour response time.
The right balance between service response times and affordability criteria needs to be reviewed in detail before inclusion in the SLA. Key factors in the decision making process would include operational risks, business culture, and business partner or tenant needs and requirements. A differential pricing structure can be implemented both between the client and service providers and between the client and tenants as appropriate.
Measuring performance
Naturally, any performance management system will rely on suitable mechanisms to measure compliance with the service levels. These measurement tools include:
* self-performance audits, where the service provider utilises data from a help desk/CMMS to provide reports on performance;* client performance audits, where the client is given the opportunity to audit the reports provided by the service provider on a periodic basis to confirm that they accurately reflect actual performance;* annual control reviews;* customer satisfaction surveys;* help desk & CMMS or Integrated Building Management System (IBMS)-generated reports;* management reports.
It is essential that an appropriate mechanism is set up within the context of the FM SLA to ensure that the performance management system (PMS) is simple and accessible; otherwise there is the danger that it will not be utilised. It should be clearly stipulated how non-performance will be determined and what the consequences of such nonperformance (or failure to meet service levels) will be. Conversely, penalties are often invoked by clients based upon subjective and non-contractual criteria, which are unreasonable and lead to a frustration and deterioration in the relationships between the parties to the service contract.
It has been said with regard to outsourcing that often people spend so much time determining whether they are doing things right that they hardly have the time to determine whether they are doing the right thing.
One of the most prevalent pitfalls with PMS’s is an incorrect focus. Where penalties are levied for specific non-conformance, the potential exists for a focus on incorrect priorities. The service provider may focus on a previously weak area to avoid cumulative penalties or breach of contract, rather than focusing on core strategic areas. It has been said with regard to outsourcing that often people spend so much time determining whether they are doing things right that they hardly have the time to determine whether they are doing the right thing.
The focus thus becomes the measurement, rather than the service, which can only have negative consequences and potentially lead to destructive micromanagement of the FM services. It is thus important that your PMS does not encourage undesirable behaviour and gerrymandering on the part of the service provider or indeed the client’s management or the tenants.
One means of ensuring a balanced approach to performance measurement is the balanced scorecard approach. This tool focuses on a limited number of measures that capture the key determinants of service success and it serves as a basis to determine how the service provider is performing from a holistic perspective. The benefit of the balanced scoreboard is that it ensures that both service provider and client focus on what is important. In terms of the approach, each item is given a rating and a weighting; the data are then displayed as a spreadsheet, which returns a score. It is not a pass/fail enquiry but rather focuses on the quality of the service as a whole. Such measurement facilitates the ability to identify problem areas (based on objective criteria) and therefore the means by which problems can be dealt with. In this way, continuous improvement of service delivery is achieved.
Developing service level agreements
In developing SLAs, one needs to:
* identify the services (scope);* categorise the services;* define each service;* develop appropriate service level specifications;* develop appropriate performance measurement systems.
The first step then is to identify and agree on the scope of services from the basket of FM services that provide support functions to an organisation. This could include plant and equipment maintenance, cleaning, hygiene, waste removal, landscaping, procurement, CMMS and help desk
management, office automation, and budgets and billing. Once this has been completed, it is important to categorise the individual services.
The next phase requires that the services be defined, in terms of what, where,how and who. The responsibilities of each party (client, users, service providers) need to be identified and documented. The services can be defined in terms of inputs, outputs or a combination, depending on the respective needs.
Defining the services – a holistic approach
The next phase is to define each service. It is important at this stage to clearly identify which parties have an interest in the service or function of the SLA itself. This should be carried out on a participative and consultative basis with all stakeholders to derive the maximum input, detail and benefit required for all parties.
When preparing the service specifications it is important to:
* map the service and determine who it will impact and how;* map the process for the service;* identify the impact on and requirements of third parties, users, clients and service providers;* identify impact on systems;* identify impact on policies and procedures;* identify impact on employees;* based on the above, identify responsibilities of each party;* Also based on the above, document the respective responsibilities.
Defining the key performance indicators
A key performance indicator (KPI) gauges when the service provider’s performance will meet the role-player’s requirements/expectations. A KPI is the same thing as a service level, except that it is a criterion, which is of key importance for managing and monitoring service compliance and service delivery.
When defining KPIs it is important to bear the following in mind: first, if you stipulate a service level but you cannot measure it, you may as well not stipulate it; and, second, it costs money to measure performance against a service level (either for the service provider or the client).
Conclusion
Properly constructed service level agreements are an important management tool in the facilities management ‘armoury’. Based on the ethos, vision and philosophy of the client, there is an obligation to maintain at least minimum service levels for both the integrity of the built environment and for the tenants, business partners, stakeholders and so on.
The intention should therefore be to embark on a collaborative process to map and define these minimum service levels with the client and key stakeholders. The effective development of SLAs in the FM environment is a process not an event. It requires, particularly in the initial phases of the change management process, intensive effort, commitment and communication between all the relevant stakeholders.
