Business relationships are about expectations. When a customer approaches you, there is an expectation in their mind they want you to meet. But expectations can be very tricky. People might have varying degrees of expectations and performance standards. And sometimes, parties do not hold up their end of the bargain. Therefore, it is crucial to have a document that outlines what is expected from all parties in a business relationship and what happens upon default. A Service Level Agreement is a perfect document to cater for this. 

However, creating an SLA might feel daunting, as not everyone knows where to start or what to include. In this article, we’re sharing some tips to help you craft proper SLAs. 

What is a Service Level Agreement?

A service-level agreement (SLA) is an agreement between a customer and a service provider. It defines exactly what services a service provider will provide and the required level or standard for those services. 

A typical SLA states in direct and express terms what the client will receive and clarifies what the service provider is expected to do. 

SLAs are predominant in the IT space since companies often rely on external services such as cloud computing, hosting, etc. However, almost any business relationship can be governed by a service level agreement. 

Why is a Service Level Agreement important?

SLAs give indications and determine the exact expectations of customers from the vendors beforehand, which would encourage consistency from the vendors and facilitate smoother operations of the customers. Furthermore, since each of the terms in the agreement is negotiated and agreed upon by both or all of the parties, none of them would contest the unavailability of directions, which ensures stricter compliance levels by both or all of the parties.  

In addition, non-compliance by any of the parties would be addressed by the remedies and penalties that are mutually agreed through the SLAs. This arrangement would relinquish the lengthy and costly litigations at the early stage itself. It would always help in reducing the wastage of time, money and allocation of diverse resources. In the cases of extreme or regular non-compliance, the SLAs allow the termination of the agreement and identification of the newer service providers who can comply with the requirements. 

The foregoing means both parties have peace of mind knowing they can hold their service provider accountable for the service they committed to at the time of the agreement. 

Types of Service Level Agreements

There are three basic types of Service Level Agreements:  

1. Customer-based SLA

Customer-based SLAs are the agreement that revolves around a single customer. It defines the relationship between a business and a customer. For example, suppose an e-commerce store signs an SLA with a manufacturer to create their custom shirts. Then the SLA will stipulate the services provided by the manufacturer to the specific e-commerce store. The agreement will then include the quality of materials, the number of shirts to be produced within a given time, and the delivery dates. 

A typical customer-based SLA contains provisions like: 

• Cancellation terms 

• Conditions of the service availability 

• Escalation procedures 

• Responsibilities of each of the parties 

• Specifics of the service the customer will receive 

• Standards for the time windows of each service level, if applicable 

2. Service-based SLA

A Service-based SLA involves the level of service for all customers and not just one customer. This type of SLA outlines the different parties’ expectations when there is more than just one end-user or service provider. 

For instance, a maintenance company may provide a service-based SLA to its clients in a building which it maintains. The SLA defines what amounts to acceptable service for all of the building’s tenants and the remedies available in case its services fall short.  

Another example is where a company provides helpdesk services to several companies or where an individual provides multiple businesses with virtual assistant services. In these instances, an SLA helps clarify the quality of service expected. 

3. Multi-level SLA 

Here, the SLA is split into different levels, each addressing a different set of customers for the same services in the same SLA. Multi-level service agreements allow you to adjust or bring together different types of SLAs to meet your customers’ demands. 

The simplest example of this type exists in many “freemium” software products. You’ll often see guaranteed service levels (like a dedicated customer service line or an assigned account manager) reserved for higher price points or exclusive to specific subscription plans. 

What Are the Components of a Service Level Agreement?

The critical components of a service-level agreement include: 

Agreement Overview

This first segment sets forth the basics of the agreement, including the parties involved, the start date, and a general introduction of the services provided. 

Description of services  

The SLA needs detailed descriptions of every service offered under all possible circumstances, including the turnaround times. You should also include how your services are delivered. If you have additional services like maintenance, you should state it in the SLA. 

Excluded Services

Specific services that are not offered should also be clearly defined to avoid confusion and eliminate room for assumptions from other parties. 

Service performance

Performance measurement metrics and performance levels should be defined. The client and service provider should agree on a list of all the metrics they will use to measure the provider’s service levels. 

Redress

This section provides for what happens should agreed standards under the SLA fall. It is typical to state that the service provider will make available acceptable concessions if this happens. Examples of concessions that can be included are fee refunds, service credits, remedial work, etc.  

Stakeholders

Clearly define the parties involved in the agreement and establish their responsibilities. 

Security

All security measures that you will take should be defined. Typically, this includes the drafting and consensus on anti-poaching, IT security, and non-disclosure agreements. 

Risk management and disaster recovery

Risk management processes and a disaster recovery plan should be established, and clear communication plans should be defined. 

Service tracking and reporting

Here, you’ll define the reporting structure, tracking intervals, and role of stakeholders involved in the agreement. 

Periodic review and change processes

The SLA and all established key performance indicators (KPIs) should be regularly reviewed. The SLA should therefore provide for the appropriate process for making changes. 

Termination process

The SLA should define the circumstances under which the agreement can be terminated or will expire. The notice period from either side should also be established. 

Dispute resolution

Description of the fact when mutual consultation occurs and what the procedure is in the event of mutual conflicts or disputes regarding the settlement and involvement of third parties.  

It is also important to mention the procedure that has to be followed. First, you should decide whether or not an independent third party will be involved (internal procedure/mediation/arbitration) and whether or not a decision of such a third party will be binding. When these methods don’t work, the conflict may be brought before a judge. 

Signatures

Finally, all stakeholders and authorized participants from both parties must sign the document to approve every detail and process. 

List of supplements 

Supplements are documents that help to provide further explanation or details about sections or clauses in the contract. Supplements that may be added here include: 

• Limited power of attorney 

• Technical specifications of services to be performed 

• Documents implied into the contract such as the service provider’s terms of service, etc.  

What is a properly drafted Service Level Agreement?

At the end of the drafting, a properly drafted and well thought out SLA should have the following elements: 

• It will state the business objectives to be achieved in the provision of the services. 

• It will describe in detail the service deliverables. 

• It will define the performance standards the customer expects in providing the services by the service provider. 

• It will provide an ongoing reporting mechanism for measuring the expected performance standards. 

• It will provide a remedial mechanism and compensation regime where performance standards are not achieved while incentivizing the service provider to maintain a high level of performance. 

• It will provide a mechanism for review and change to the service levels throughout the contract. 

• Ultimately it will give the customer the right to terminate the contract where performance standards fall consistently below an acceptable level. 

A service-level agreement is essential for protecting your company and ensuring it maintains a good relationship with customers. By reaching a clear understanding of what standards are crucial and what the consequences will be if those standards aren’t met, you can ensure that the relationship will be positive for all parties involved. 

It’s also a good idea to review your SLA as your business changes and grows, as the SLA should reflect its evolving needs and capabilities. If you need help creating a service-level agreement or would like to revisit one that you currently have in place, an experienced attorney can help.