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A service-level agreement (SLA) is a contract between a service provider and its customers that specified the services the provider will deliver and the terms and conditions of such delivery. It  defines the service standards the provider is obliged to adhere to. SLAs are thought to have originated with network service providers but are now widely used in a range of IT-related industries. Some of these industries that require SLAs include IT service providers and managed service providers, as well as cloud computing and internet service providers.

An SLA is not a standard contract for service. The key difference here is that contracts can be signed and finalized without specifying the service levels to be adhered to. It is unlikely that most business would meet on a regular basis to report on performance issues on a standard contract. An SLA however, requires regular assessment on a negotiated agreement, continuous communications and flexible parameters. The focus in drafting an SLA is that it serves as a basis for regulation of the service provision in an equitable and sustainable manner with pre-determined parameters of service and with clearly defined obligations of both parties.

The key features a Service Level Agreement (SLA)

Service Level Agreements can be vary considerably in complexity and variety, even when offered by the same service provider. This depends on the very nature of the service to be provided and the specific terms and conditions agreed upon by the parties to the agreement. In general, a comprehensive SLA should include details on the following elements:

  1. The Parties to the SLA. Where necessary, the relevant authorisations of the signatories to enter into the agreement on behalf of each of the parties should be included.
  2. The Service/s to be Provided. A detailed description is required of the service/s to be provided clearly defining the responsibilities of the service provider in the provision of the contracted service/s.
  3. The Integrity and Reliability of Provider.  Clear commitments are required by the Service Provider to reflect the bona fide intentions to deal with any unexpected issues or service provision disruptions to minimise the impact of such events on the business activities of the Party receiving the services specified in the SLA.
  4. Continual Performance Assessments. This is an important part of keeping the SLA updated and relevant to the changes in service levels which may be required over the duration of the term of an SLA, particularly, when such SLAs include provisions for auto renewal unless either of the parties requires termination of the SLA within the provisions of the agreement. The Party receiving the service needs to be given the means to monitor and measure the quality of the service being provided. Consequently, the SLA should define which of the Parties is responsible for the monitoring of the service/s and how the service/s monitoring data will be evaluated and shared between the parties.
  5. Response in a timely agreed upon manner. Most SLA agreements recognise the reality of possible system or service disruptions. In the simplest form, these are typically classified and Minor, Major or Critical. Once specific definitions are provided for each category of fault or disruption, related response actions and timeframes are associated. Clarity in the definitions and responses, including specification of call-out times and relevant charge-out rates for the different call-out times, is essential to avoid mis-understandings when such occurrences do take place.
  6. Stakeholders to the Agreement. Although the SLA usually involves two parties, the service provider and the client receiving the service, in many situations, other stakeholders are involved in the service delivery and utilisation. These may be external sub-contractors, third party infrastructure service providers etc. When such situations are evident it is vital that the SLA includes a clear definition of all the parties involved and their specific roles in ensuring the client enjoys uninterrupted enjoyment of the service/s defined in the SLA.
  7. Reporting arrangements. Depending on the complexity of the service/s covered in the SLA, there may be need for particular reporting arrangements when faults or system inconsistencies occur. The reporting arrangements may be critical to the provision of certain service provider responsibilities and failure by the client to meet the agreed upon reporting terms may exonerate the service provider from responsibilities set out in the SLA. The client needs to be aware of how fault reports are to be raised and to whom these are to be addressed to ensure that the service provider is given all the necessary information to deal with the issue effectively within the relevant timeframes.
  8. Penalties for not meeting agreed upon criteria. The more complex the SLA the greater is the need to include a system of penalties which keeps both parties true to the detail of the SLA, which is critical for the overall functioning of the SLA and the smooth provision of the service/s contracted. The SLA should provide for penalties to be imposed on the service provider for not delivering on the agreed upon criteria of the SLA, be they not meeting response call-out times, reduction of system down times, etc. Penalties also need to be set for the Client should specific terms and conditions of the SLA not be honoured, be these payment terms, fault reporting, etc.
  9. Limitations and Constraints/Conditions of Cancellation. The SLA needs to set out specific terms and conditions under which either party can choose to terminate the agreement. Such provisions would include automatic termination if either party is breech of specific provisions of the SLA which allow for automatic termination by the aggrieved party without loss of right for compensation by the offending party.

The benefit of having a comprehensive SLA is that it allows the parties to the SLA to have a clear understanding of the service/s to be provided and what each party can expect from the business relationship. The scope of the SLA is not to lose the parties in detail, but to provide the detail necessary to allow for its day-to-day implementation. The key issue here is having clear and defined metrics agreed upon by the parties to which the agreement can be scrutinized to the benefit of both parties.

Performance metrics to be included

SLAs identify the key metrics that the service provider needs to adhere to in the provision of the service/s for the duration of the SLA. These are unique to each SLA, however, some of the more common metrics used for SLAs are;

  • Specified performance targets: Performance of service provider will be periodically compared to these targets set.
  • Reliability and uptime:  The reliability of the service being constantly provided and accessible to the customer. Uptime is typically monitored and reported per calendar month or billing cycle.
  • Solution time: The time it takes for an issue to be resolved once registered by the service provider.
  • Response time: The time it takes the service provider to acknowledge and respond to a customer’s request.

Periodic revision of SLAs

As businesses and environments around businesses change, so do the support services required. An SLA should not be considered as a static document, but rather SLAs should include a clearly defined template for revision during the term of the contract. The SLA should be reviewed periodically, especially if:

  • The technical environment of the client has changed
  • The client’s business requirements have changed

The SLA is a critical part of any business agreement, and it will prove beneficial in the long-term if the SLA is properly agreed upon and well thought-out at the beginning of the business relationship. It protects all parties, and, should difficulties arise, will specify antidotes and avoid broken business communications and relationships.

The SLA is not a sales contract for the simple purchase of a one-off physical good. It is a dynamic document which needs to regulate an ongoing business relationship over a period of time. The SLA   must add value to both parties to ensure a sustainable service/s within what are often volatile and demanding environments.