Performance Standards

George Kimball and Mark W. Heaphy

Chapter 7 in Outsourcing Agreements, 2025, pp 179-216 from Edward Elgar Publishing

Abstract: Performance standards commonly include (i) general warranties of quality and (ii) specific service levels that are measured, reported, and may bear financial consequences if missed without excuse. The chapter then discusses typical metrics for IT and other services, reporting, and establishment of service levels from market standards or a validation process. Service levels may be classified according to their importance. Service credits, when payable, are commonly calculated as percentages of suppliers’ charges, within various parameters. Failures commonly require root cause analyses and remedial action. Excessive failures or payments of credits may constitute grounds for termination. Failures are excused when attributable to force majeure events, customers’ acts and omissions, and other circumstances outside the supplier's control. Service levels may be adjusted periodically, through joint review or based on either continuous improvement or certain customer elections. Customers sometimes enjoy limited rights to adjust credit amounts, at intervals, and within agreed parameters limiting the supplier's total exposure. Less frequently, sustained excellent performance may reward suppliers, either through incentive payments or credits against potential future credits (‘earnbacks’). The chapter then discusses service levels in suppliers’ contracts for software-as-a-service (SaaS) and other standard offerings (as opposed to full-scale outsourcing of entire functions), which tend to be few in number and bear modest consequences when missed (e.g., credits against future charges). The chapter concludes by discussing crucial definitions (e.g., metrics for measurement) and practical considerations when service levels are negotiable, including linkage, with related commercial and contractual issues (eg, quality, price and remedies).

Keywords: Outsourcing; Business Process Outsourcing; BPO; Information Technology Outsourcing; ITO; SLAs; Service levels; Service level credits; Earn-backs (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035316984
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