SLA Penalties?

[ITILRich]

Hello,

I am working with a client over the creation of an SLA for one of their customers. It is a requirement that some form of penalty or service credits are awarded for failure in delivery of the service against targets agreed in the SLA.

Usually I try and avoid any form of penalty clause in an SLA as in many respects I see it as counter to the general spirit of SLA’s. However this is a commercial outsource IT provider so essentially the SLA will be wrapped up in a legal contract and there is a definite requirement for some form of penalty clause.

My previous experiences with SLA’s have always been for internal IT providers and have not included such a clause so I wanted to seek opinion from the groups as so what appropriate penalties would be?

My general feeling is that it needs to be structured in some way so that minor failures to hit a target (e.g. they hit 59% of something when the target is 60%), or when targets to resolve Incidents at Priority level 5 receive a lower level of penalty than missing a Priority level 1 or 2 target. In addition does a failure to miss only one target in a reporting period result in a penalty or do there need to be several?

I think that we will go for something which will result in a service credit applied to subsequent invoices, but the exact structure behind this just isn’t quite decided.

So, any ideas? We want to make sure that any service credit we apply is along an industry norm....

Thanks,
Richard.

[sumituprit]

There is no industry norm provisioned on such clause of SLA breach Penalt.
Yes overacheiving SLAs has always been rewarded with a creamy bonus. The challange for you is not how to provision a clause in SLA but the challange is how you will calculate it. I mean for a SR the terrif will be lowest and for Priority 1 the terrifs will be highest, but who will be at negotiating this, have you defined any such role mediating b/w both the parties.
if all is well and decided by governance (I wonder), the renewal contracts will be the sum after deduction of such penalties.
for triggering such penalties you will have to decide price of per SLA and same amount or % of the amount should be deducted/credited from the account.
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ITIL V3 Certified --Intermediate level
Service Transition management.
Manage the change and change the management to an improvised tool