Components of service level agreement (SLA) -- a vital part of a technology services vendor contract -- are:

  • The service expected from the vendor
  • How the service will be measured
  • The consequences if the service isn't provided to the agreed-upon level
  • Solutions if the listed requirements aren't followed

SLAs typically are between companies and their external suppliers, but they can also be between multiple departments within the same organization. A quality service level agreement considers the expectations of both the service provider and the recipient. An SLA is an important part of an outsourcing or technology vendor contract. When outsourcing a service, the SLA describes the services the provider will deliver and the expected quantity and quality of those products.

An SLA is negotiated and helps both parties be on the same page with expectations and responsibilities. Because an SLA encourages communication between both parties and outlines their responsibilities, it can reduce potential conflicts before they grow out of control.

Why Do I Need an SLA?

A service level agreement is an important part of an IT vendor contract because it brings together all the contract details and responsibilities from both parties into a single document. If there are issues with the service, both parties are at fault because the SLA clearly outlines the metrics and expectations of the service and makes sure both parties understand the requirements. A contract that doesn't have an SLA runs the risk of being misinterpreted, either on purpose or inadvertently.

An SLA protects everyone involved and should be aligned with the business or technology objectives of both parties. If the agreement isn't aligned, it can create issues with pricing, customer experience, and service quality.

Who Writes the SLA?

It is common for IT service providers to have standard SLAs that can be a good place to start negotiation. SLAs are typically written in favor of the service provider, so the customer and their lawyer should still review the agreement and make changes as needed.

The customer should include the level of service they expect as part of the request for proposal (RFP). Including that information helps the service provider price their offering appropriately and decide if they should respond to the RFP or not. If a supplier sees that a customer is demanding 99% availability for a system in their RFP, they can know if they can meet the demand or if they need to suggest different terms.

Can an SLA be Transferred?

If a service provider merges with another company or is bought out, the SLA is no longer valid. It will likely have to be negotiated again. However, some new owners may be willing to honor existing SLAs so that they don't risk losing existing customers.

How are Service Levels Verified?

In order to stay accountable to their customers, most suppliers use an online portal so that customers can see statistics and know if their SLAs are being followed. If the SLA isn't being met, the customer may be able to receive credits that were agreed to in the SLA. In most cases, the outsourcing company is responsible for checking that the processes can support the SLA.

Clients and outsourcing companies should work collectively during negotiation to ensure that both parties are on the same page about the process, methods, and reporting structure.

If the service being performed is especially critical or time-sensitive, customers should use a third-party tool to update the SLA performance data automatically.

What Metrics Should I Monitor?

Required SLA metrics vary depending on the type of service that is being provided. There are a number of items that can be monitored for an SLA, but it is best to keep the monitoring as simple as possible to keep costs down and avoid confusion. Select the metrics that are most important for the operations of the company. Choosing too many metrics can make it difficult to analyze the data correctly. If you are unsure about what metrics to choose, select the metrics that will be easiest to collect or that can be collected automatically.

If you need help with components of a service level agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.