Expand your corporate world!

Knowledge base

Beginners Guide to Service Level Agreements: Important Information & Q&A

January 5, 2018

SLAs are a critical component of any outsourcing and technology vendor contract. Beyond listing expectations of service type and quality, an SLA provides remedies when requirements aren’t met.

We have compiled a list of answers to common questions regarding SLAs and basic tips on how your organisation or business can create effective SLAs with any vendors or business partners.

What is an SLA?

A service-level agreement (SLA) is a basic document that recites the level of service expected from a supplier to a customer, like B2Bs such as external suppliers and companies. The agreement is similar to a contract in that it details the metrics by which a service is measured, and the remedies or penalties that are to be in imposed should the level or quality not be attained as stated.

Why would I need an SLA?

SLAs play a key role in a typical IT vendor contract. An SLA gathers all information of the contracted services and their expected consistency into a single document. It ensures both parties have the same understanding of requirements; clearly stating the expectations, metrics and responsibilities so that, in the event of any issues arising with the service, neither party can state that they were unaware of the minimum acceptable standard.

What’s included in an SLA?

Any good Service Level Agreement should include:

  1. A description of the services to be provided & their minimum acceptable service level.
  2. Metrics by which the services are measured.
  3. The duties and responsibilities of each party.
  4. The remedies or penalties for any breach of contract.
  5. A procedure for adding & removing metrics.

Goals and metrics are designed so any non-compliance or behavior by either party cannot be tolerated. For example, if a service level is breached because the client did not provide information in a timely manner, the supplier should not be penalised.

What is an indemnification clause?

An indemnification clause is an important provision in which the service provider agrees to indemnify the customer company for any breaches of its warranties. Indemnification means that the provider will have to pay the client for any third-party costs arising from legal action, as a result of any breach of contract or warranty. If you use a standard SLA provided by the service provider, it is likely this provision will be omitted; ask your own council to draft a simple provision to include such clause, although this may be a further point of negotiation between the two parties.

What metrics should be monitored?

The types of SLA metrics required will depend on the services being provided. Many items can be monitored as part of an SLA; however the arrangement should be kept as simple as possible to avoid confusion and excessive cost for both parties. When choosing the required metrics, examine your operation and decide what is most important. The more complex the monitoring and accompanying remedial scheme, the less likely it is to be effective, as excessive time to analyse the data will not be taken. If unsure, we would recommend automated systems for ease of metric data collection as this is the cheapest and most reliable method compared to the manual collection of metrics.

Depending on the service, the types of metric to monitor may include:

  • Service availability.
  • Deficiency rates.
  • Technical quality.
  • Measuring controllable security.
  • Business results.

For any help drafting an SLA, contact us, we have legal experts on hand to assist you.

Learn how to solve problems in your business today