Key Takeaways

  • A service level agreement (SLA) is a specialized type of contract that defines the quality, availability, and responsibilities of service delivery between a provider and customer.
  • SLAs differ from general contracts because they focus on service performance metrics—such as uptime, response times, and remedies for failures—rather than just obligations and consideration.
  • Common SLA elements include service scope, performance indicators, dispute resolution, penalties, and review mechanisms.
  • Contract law applies to SLAs, and consumer protection laws may also apply if services are offered to individuals.
  • SLAs are widely used in IT and cloud services but also apply to other industries where performance standards are critical.
  • To be effective, SLAs should be specific, measurable, regularly reviewed, and aligned with business objectives.

There is a difference between service level agreement and contract. A service level agreement, which is commonly referred to as an SLA, is used to define the relationship between a client and a service provider. Much of the time, it is used within the IT industry when IT companies provide services to their clients. In this type of situation, the IT company is referred to as an IT vendor.

What Does an SLA Cover?

The SLA goes into great detail and covers what services are going to be rendered by a certain entity and how they are to be provided. Any time there are goods to be rendered, an SLA should not be used. It is only meant to be used when an entity is acquiring services from a provider.

SLAs are, in theory, enforceable by a court of law. However, it should be noted that any legal processes involved in enforcing an SLA tend to be extremely lengthy and very costly. This is why, most of the time, a customer will choose not to enforce an SLA through a court of law. The more detailed an SLA is, the more likely it is to be enforced. When it lacks details, there's a good chance it won't be enforced.

Although an SLA does provide protection to both parties, it is meant to be used as a tool that can build a relationship between the two parties. It should never be viewed as a weapon that is to be used against one another.

Once a service level has been agreed upon an SLA needs to be created that outlines how the service is going to be performed and provided, as well as what is to happen if the company fails to provide the service. Much of the time there will be a section in the SLA that outlines how any disagreements are to be resolved between the two parties and not in a court of law. It may also state that certain credits are to be given to the customer if the company fails to provide the service they agree to.

Difference Between an SLA and a Standard Contract

While an SLA is a type of contract, there are important differences. A standard contract sets out the overall terms of the relationship, such as payment, duration, and general obligations of each party. In contrast, a service level agreement narrows the focus to service performance and accountability. For example:

  • Contracts define the legal relationship and consideration exchanged (money for services).
  • SLAs define performance standards, measurable outcomes, and remedies if those standards are not met.

An SLA may be a standalone agreement or incorporated into a master contract. The distinction is that SLAs go beyond promises of service—they specify how well those services must be delivered, creating transparency and setting customer expectations.

What Types of Law Apply to SLAs?

Although an SLA is an agreement, it's actually a contract too. Because of this, contract law applies to SLAs. This law is mostly based on common law, such as case law. There have been numerous cases dealing with contract law, including those related to:

  • Offer and acceptance
  • Interpretation of contracts
  • Concluding contracts by email

Even though contract law applies to SLAs, there are only a few Acts of Parliament that apply. If one of the parties involved in an SLA is a consumer, then the Consumer Protection Act will apply. This Act mandates that an SLA be written in a language that is very easy to understand by a consumer, meaning it should use understandable language. More so, it cannot include any type of prohibited clauses.

An SLA should be viewed as a contract that takes place between a service provider, this can take place either internally or externally, and an end user. The level of service is clearly explained in the SLA to ensure both parties understand what level of service is to be expected. These types of agreements are output-based, meaning that their entire purpose is to explain what the end user will receive from the service provider.

Key Performance Indicators and Metrics in SLAs

A strong SLA relies on key performance indicators (KPIs) to measure service delivery. These metrics allow both parties to objectively evaluate whether obligations are being met. Common SLA metrics include:

  • Availability/Uptime – e.g., 99.9% system availability.
  • Response Time – time taken to acknowledge a service request.
  • Resolution Time – maximum period for resolving service issues.
  • Throughput or Capacity – volume of service that must be handled (such as transactions per second).
  • Support Metrics – help desk availability, escalation procedures, and customer support responsiveness.

These benchmarks help ensure accountability. If providers fail to meet the agreed metrics, remedies such as service credits or termination rights may apply.

What Sections Are Included in an SLA?

There will likely be a section in the SLA that outlines how the service provided is to be measured. It will also include how any issues between the parties involved can be remedied. If there are any penalties associated with not providing the service, the SLA will outline them as well. Normally, an SLA explains an agreement that has been made between a company and an external entity. However, in some cases, they represent an agreement between two departments of the same company.

Most service providers will create some type of standard SLA, or multiple standard SLAs, that outline how their various services are to be provided to end users. These SLAs prove to be of the utmost value when negotiating prices for their services with clients. All SLAs should be reviewed on a regular basis and modified if necessary.

Best Practices for Drafting and Managing SLAs

When drafting or managing an SLA, both providers and customers should focus on clarity, enforceability, and adaptability. Best practices include:

  • Define Services Clearly: Avoid vague terms and describe what is covered in plain, measurable language.
  • Align With Business Goals: Ensure service levels match what the customer truly needs.
  • Specify Remedies: Detail what happens when standards are not met (e.g., credits, escalation, or termination).
  • Include Exclusions: Clarify what is not covered to avoid disputes.
  • Review Regularly: Technology, business needs, and laws change—SLAs should be updated accordingly.
  • Use Monitoring Tools: Automated tracking and reporting systems ensure transparency and reduce disputes.

By following these practices, SLAs remain effective documents that foster trust rather than create conflict.

Frequently Asked Questions

1. What is a service level agreement in simple terms?

A service level agreement (SLA) is a contract that defines the expected quality, availability, and responsibilities of a service between a provider and customer.

2. How is an SLA different from a contract?

A contract establishes the overall business relationship, while an SLA specifies service performance standards and remedies if those standards are not met.

3. What should be included in an SLA?

An SLA should include service scope, performance metrics, remedies for failure, exclusions, monitoring methods, and review procedures.

4. Are SLAs legally enforceable?

Yes. Since SLAs are contracts, they can be enforced under contract law. However, enforcement can be costly, so many include dispute resolution and service credit remedies.

5. Why are SLAs important in IT and cloud services?

They ensure providers meet expectations for uptime, response times, and security, which are critical for businesses that depend on continuous, reliable access to technology.

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