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Service Level Agreement

Updated on:  

08 min read

A Service Level Agreement (SLA) is a document that defines the services that the service provider will provide and the performance standards of the services. It is an agreement between a service provider and a customer. The SLA is generally a part of a managed service or outsourcing agreement or can be used independently for the provision of services.

Elements of an SLA

  • Objectives

The objectives must be set out in the SLA. The reasons for entering into an agreement with an external service provider must be broadly laid out, like improved performance, cost-saving, access to improved skills/technologies. Doing so sets the ground for both the provider and the customer. Details of Services

  • Details of Services

 The SLA must include all the details of services that will be provided. The details must answer all questions surrounding the service – how, when, to whom, which. For instance, one of the services is providing training to employees; then the details must include how it will be imparted, what will be the duration, what will be the mode of training, and who will benefit.

  • Standards of Performance

The next essential element is defining the standards of performance of every service mentioned. The customer will expect the highest level of standards, while for the service provider, that would mean an expensive and unreachable target.

Also, the standard should be specified, keeping in mind the changes that can impact the provision of services. In the example in the above point, the customer may state that coverage of a topic in training must be 100%; however, depending on the learners grasping ability, this can vary. Hence the same must be discussed, and a broad outline must be devised stating the non-negotiable factors for both parties.

  • Compensation

For the effective implementation of the SLA, there should be an element that covers the consequences of not meeting the said standards or requirements. The consequences will have a financial impact and will be clearly spelt out in the agreement.

For instance, the agreement provides for reporting services like a financial report with an accuracy of 95%; the agreement must state the financial impact for non-adherence to the standard, like for three consecutive failures, a deduction of 10% from the fess or so.

  • Termination

For non-adherence being a one-off instance, a policy of deductions/compensation works. But what if the service provided is constantly below standard. What will be the level at which a call for discontinuance of services must be taken? This applies to both parties, and hence the right to termination must be granted. The circumstances that can give rise to it, the notice that would be required, and the period of notice must be clearly mentioned so as to avoid any disputes.

For instance, in the above example, the customer can decide that non-adherence to the standards more than eight times in a said period will amount to critical failure and hence provide the right of termination.

  • Other provisions

The other provisions that are a part of the SLA are as follows:Price modifications

  • Price modifications

The SLA must specify the underlying factors that can lead to a change in the pricing. Also, for long-term contracts, the intervals which will call for periodic review of pricing must be mentioned.

  • Dispute resolution

This is an important element and is sometimes included in the SLA rather than the main contract or agreement. The details of how and where a dispute will be resolved is mentioned and agreed upon by both parties.

  • Control over work product

The SLA also defines the ownership of work product and liability for the same. The work product is owned by the customer, and once the work product is delivered back to the customer, the service provider will have no rights or obligations over the same.

  • Confidentiality

Another vital element is confidentiality. The SLA will contain provisions to restrict the rights to disclose the details and specifications or knowledge gained during the provision of services to the customers.

Points To Keep In Mind While Drafting The SLA

  • Prepare the SLA at the start of the process so as to devote a good amount of time to the thought process behind the drafting and the purpose it must serve.
  • SLA must be realistic and not perfect. It must serve its purpose and must be mutually beneficial so as to make it long-lasting.
  • SLA must be crisp in terms of the service details as the same will have to be monitored.
  • The compensation clause is a must.
  • The review mechanism must not take very long periods as it will defeat the very purpose of review, and the customer will have to bear with substandard quality for a long period.
  • The right to terminate must be included in the event of critical failure. Critical failure must be defined clearly.

The SLA must include the above elements and other specific details that are peculiar to the nature of service. It must be legally enforceable to make it binding on both parties. 

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.