Service contracts, such as hard facilities management agreements, often include: a service specification, a service level agreement and a performance management regime. If a service is to be delivered successfully, these three schedules must be easy to manage and, most importantly, communicate with each other.
The Service Specification
The service specification sets out the services which the Authority requires the Contractor to provide during the contract term. It is imperative it is both clear and comprehensive – setting out all of the tasks which the Contractor is required to undertake and how each must be done.
Where the specification is unclear, a Contractor may exploit the ambiguity and argue that it had not priced for carrying out that service or carrying out the service in a particular way. This can lead to the Authority being required to pay additional costs.
The Service Level Agreement (“SLA”)
This typically sets out which services the Authority will be monitoring. These “monitored” services are sometimes called Key Performance Indicators (KPIs) and each will specify a performance standard which the Contractor must achieve. For example, a maintenance contract may include a KPI requiring the Contractor to attend 90% of all callouts within 2 hours of receiving a notification from the Authority.
The Performance Monitoring Regime
The performance monitoring regime requires the contractor to report on its performance against the KPIs and sets out the consequences where a Contractor has failed to achieve them.
For example, one type of performance regime is the “service failure point” regime where the Contractor receives service failure points for each KPI which it fails to achieve. The number of points should reflect the level of importance to the Authority of the Contractor complying with that KPI – the greater the importance, the greater the number of points awarded. The contract may then contain specified remedies for the Authority where the Contractor has been awarded more than a certain number of failure points during a contract month, e.g.:
Step In - remedy the issue and recover the costs from the Contractor;
Request a Remedial Plan – require the Contractor to provide a plan for rectifying the issue (and importantly and obligation comply with the plan); and/or
Levy Deductions – deduct a certain percentage or a set amount from the Contractor’s future payments, either temporarily ( e.g. until the issue is resolved) or permanently.
Authorities should ensure that their service specification is clear and accurate and that these three schedules are co-ordinated to ensure that the Authority obtains the service it requires and, where it does not, that there is an easy and efficient way to seek remedies.
Our Projects and Construction team has extensive experience of advising both contractors and Authorities on negotiating, enforcing and managing performance monitoring provisions in service contracts. If you think that you are not getting value for money from your contract or are negotiating the procurement of a new service contract then our Projects and Construction team would be happy to discuss this with you and provide you with a legal commercial solution.
Written by Greg Fearn