October 2, 2000

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Special Report: Storage Service Providers
More Than A Best Effort: Negotiating SLAs

By Nick Wreden

hat happens if you can't access data entrusted to a storage service provider? The answer is clear--if service-level agreements that clearly spell out mutual responsibilities and remedies are negotiated beforehand. According to Clearview Management Consultants in Dallas, 70% to 80% of outsourced IT organizations depend on SLAs, compared with 30% to 40% of internal IT groups, which often have formal agreements with business units concerning service and responsiveness. SSPs offer standardized SLAs with stock benchmarks for performance and reliability.

Leah Ward-Lee, infrastructure director at LSG Sky Chefs, has worked to ensure that SLAs match business goals for the privately held airline catering company in Arlington, Texas. "We've learned that our IT SLAs really do help us meet our company goals," she says.

A clear, mutually understood SLA not only turns vendor promises into measureable realities, but also establishes discipline and helps control costs. Key areas to address in SLAs with SSPs include hardware and software upgrades; benchmark data transfer times; availability; the speed and accuracy of backup and recovery; capacity management and performance tuning; and, of course, security. Other issues include time-to-answer and call resolution by help desks, and the appropriate reports.

Generally, SLAs are 25 to 50 pages long and can take as long as eight weeks to negotiate, although SSPs clearly prefer their standard SLAs. Ideally, a draft SLA should be given to vendors during the selection process to improve pricing accuracy and avoid hidden charges later.

SLAs should revolve around three key components, says Judi Coover, a partner with J.A. Coover & Associates Inc., a technology-negotiation firm in Dallas: standards, measurement, and remedy. The standard should consist of a measureable benchmark for an issue that's important to the business. The measurement should be quantifiable. For instance, "Within four hours 90% of the time" is preferable to "best effort." Finally, the remedy should spell out what happens if those standards aren't met.

Not everything needs to be measured, however, because such measurement drives up costs. "Pick the top issues that have a business impact and don't always worry about the availability of a component part," says Jay Looney, a Clearview partner. "More savvy customers will tie service-level metrics to the issues that deliver a competitive advantage, such as time for an SSP to scan, retrieve, and transmit data for a credit-card authorization."

Remedies for failing to meet measurements must be simple to calculate and reasonable; otherwise they may not be enforceable in court. Penalties are usually a percentage of the monthly fee for that service, ranging from 5% to 25%. "That figure should represent the SSP's profit and a portion of overhead, but not the out-of-pocket costs," advises Marc Liebman, VP of business development for Everest Group, an outsourcing consulting firm in Dallas. "You want to get their attention, but not put them out of business."

Penalties should escalate for each occurrence until the relationship is ended. Vendors may have other ideas, however. For example, StorageNetworks Inc. reimburses customers in the form of a service credit that's based on a percentage of the monthly fee.

Also consider positive incentives that may not involve money. For example, Looney suggests allowing the SSP to use the customer as a public-relations case study if standards are exceeded.

Negotiations should be handled by the SSP and the customer's managers who will be actively involved in the relationship. Consider resetting the contract after six months when both parties are more knowledgeable about actual requirements. Since successful relationships are based on trust, avoid getting lawyers involved until all the details have been worked out.

Purchase the research

Which enterprise storage vendors offer the best overall product value? And which storage providers are deemed the most reliable? Increasingly, outsourcers are being called in to advance networked storage capability. But are service expectations being met? Find out by ordering, "Analyzing The Storage Vendors."

Return to main story, "Outsourcing Options: A Hard Sell."

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