What is a service level agreement (SLA) and why it is important?

What is an SLA?

A service-level agreement is essentially a contractual agreement containing terms and condition with regard to service delivery, thereby forming a legal agreement, between the client and service provider.

What forms an SLA?

An SLA basically comprises of components in two realms – services and management.

Service elements include specifics of services provided (and what’s excluded, if there’s room for doubt), conditions of service availability, standards such as time window for each level of service (prime time and non-prime time may have different service levels, for example), responsibilities of each party, escalation procedures, and cost/service tradeoffs.

Management elements should include definitions of measurement standards and methods, reporting process, contents and frequency, a dispute resolution process, an indemnification clause protecting the customer from third-party litigation resulting from service level breaches (this should already be covered in the contract, however), and a mechanism for updating the agreement as required.

This last item is critical; service requirements and vendor capabilities change, so there must be a way to make sure the SLA is kept up-to-date.

Why it is important?

A well-drafted, carefully reviewed, unambiguous, comprehensive service-level agreement is important for the delivery or receipt of any service in a fair and legal manner.  An SLA (service-level agreement) simply encompasses the parameters for the delivery of a particular service, for the benefit of both parties.

The quality and legality of an SLA is of utmost importance.  A good SLA must be complete, comprehensive, accurate, specific, unambiguous in its contents and language so as to cover all and every aspect of that transaction.  Parties entering into a service agreement through an SLA must fully and clearly understand its contents and their obligations described therein.

Where do I start?

With a bit of effort and diligence, anyone having thorough understanding the nature and technicalities involved in a business can draft an SLA.  You can start off by jotting down the following points:

  • Factors affecting the service delivery
  • Delivery deadline, mode and nature of delivery
  • Quality and quantity indicators
  • Payment terms
  • Privacy policy
  • Disclaimer and indemnity

You can establish what is required by addressing the above points.

Can an SLA be transferred?

If the service provider gets acquired by or merged with another company, the customer may expect that its SLA will continue to be in force, but this may not be the fact. The agreement may have to be renegotiated. Make no assumptions, however bear in mind that the new owner will not want to alienate existing customers, so may decide to honor existing SLAs.

How do I ensure if it is legally correct?

You can find a lot of sample SLAs around, and most service providers have standard SLAs, which you can keep for reference.  However, one needs to ensure if it is fully compliant with local laws and statutory requirements and suiting your business needs.

Hiring a good corporate lawyer having expertise in handling SLAs is the best way to ensure if your commercial interests are protected.  Often SLAs provided by the supplier are slanted in favor of him by his by the supplier’s legal counsel, so it is important to have your lawyer review and advise you to prevent you from any loss.

Contact our attorneys right away for consultation, review and drafting SLAs for your business