Any smart small business owner who hires an outsourcing firm to provide services will first sign a well written and comprehensive service level agreement (SLA).
The process is critical if both sides are to collaborate successfully down the road, as it sets clear expectations about the service levels to be provided. The customer knows exactly what has been purchased and the outsourcer understands the customer’s expectations.
What are some of the most important terms an SMB should ensure it has included in its SLAs?
- Money matters. The first and most obvious term to include revolves around pricing. What will the outsourcer charge, for what exactly, and what will be the length of the contract?
- Renewal terms and termination terms. How do you renew a good contract? How do you get out of a bad one? If an outsourcer has made it overly complex for you to extract yourself from a contract, it’s probably by design, says Eric Andrew, national leader of the Private Company Services Practice for PricewaterhouseCoopers in Vancouver. “I have seen people enter into contracts that have draconian termination clauses where if, for example, you don’t phone and cancel with the right person at 2:03 PM on the second day before expiry you’re deemed to automatically renew, etc.,” he says. “You don’t want to do business with people like that.” Ensure you know what penalties apply to termination and exactly how to end the relationship if it’s no longer working for you. Remember, you entered into an agreement to simplify your life and increase efficiency, not to give up all your rights and solicit new headaches.
- Intellectual property ownership. Who owns your intellectual property when you outsource it, and do you get it back if you want to make a change? If you’re outsourcing processes, and your outsourcer has your customer or supplier lists or other important records or company transaction histories, you want to make sure you will get them back when the partnership is dissolved. If you can’t, you’re in big trouble.
- Performance reporting. With payroll outsourcing things are pretty obvious: You generally get a summary or reports back monthly and they tell you what’s happened, so you can record the data properly. But if you’re outsourcing something like your call centre, you want proper logs of how many people have called in and exactly what problems they are reporting. If you don’t have the same access to this type of information because your third-party has the critical data and you don’t see it, what’s the point? Make sure you are as aware of what’s going on at the call centre (or other department) as you would be if you handled it internally. Get what you paid for.
- Security. Make sure you have addressed both IT security as well as issues related to confidentiality. For instance, with payroll, the outsourcer has access to a lot of confidential information. Make sure it’s safe. “It’s interesting because I see that for a lot of enterprises one of their challenges is, let’s call it, remuneration of the owners,” says Andrew. “They almost need a separate system in order to keep that away from their employees, so there’s a lot of sensitivity around those things.”
- Dispute resolution mechanisms. How will problems or disagreements between you and your outsourcer be handled on a regular basis? If you’re going to a sophisticated outsourcer that works with many hundreds of client contracts, they are bound to cover such issues, but if you decide to deal with a smaller or very new company you’ve got to be a whole lot more vigilant, says Andrew. They won’t necessarily have the right amount of experience, staff or even an appropriate set of procedures to handle conflicts or technical SNAFUs. They might not offer you a clear and well-developed contract. Make sure they do, or find someone else.
Eric Andrew is the national leader of the Private Company Services practice of PricewaterhouseCoopers LLP in Vancouver.
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