1. What Is A Service Level Agreement (SLA)? 
2. Overview of SLAs: Penalties and exclusions 

A service level agreement is created to describe the quality of service a customer or end user can expect from a service provider. It provides language that determines service quality benchmarks as well as penalties or remedies that are available to customers. 

What Is A Service Level Agreement (SLA)? 

A service level agreement is a legally binding contract between end users and service providers. It creates expectations about the quality of the service being provided. Their focus is on describing what the user (or customer) can expect to receive. In that regard, they are very output-based. The agreement does not describe the "how" of service provision, only what the final output will be. The document can also be referred to as an operating level agreement when there is no formal customer/service provider relationship between the two parties. 

One example of a service level agreement is the document an internet service provider typically gives its customers. Such a document would outline a few key things if written correctly:

  • A detailed service description. It would include language about network connectivity, how domain name servers should work, and any other key features of the service. 
  • Expectations for reliability or uptime. It might set a limit on the percentage of downtime the user can expect. 
  • Service schedule and response times. The document would include expected response time to maintenance requests. It could also set a service schedule for the product. 
  • Protocols for dealing with errors. It could state who to contact about issues, how issues can be escalated, and any other information relevant to how customers can expect problems with their service to be solved. 
  • Details on how performance is monitored. Will the service provider collect any data about the performance of their service, and how often? How much of this information is available to the customer?
  • What happens if these standards are not met. Can the customer cancel their contract? Will they be fully or partially reimbursed for the service's cost?
  • Language that details circumstances that would release the service provider from the obligation to meet these standards. For example, if a major flood destroys part of the ISP's infrastructure, they might be released from the service level agreement's requirements. 

While the exact terms of any service level agreement are likely to vary, each service level agreement should define the volume or scope of work, the quality expected, the service provider's speed or efficiency, and the expected response for troubleshooting needs. When all of these are covered, the document effectively establishes the expectations of the customer and the responsibilities of the service provider. It creates a guarantee for the customer at the same time as it establishes the priorities of the service provider. 

In each area of the service level agreement, goals should be as specific as possible, and they need to be measurable. This is the only way to use the document as a guarantee of service quality. When the language is specific, it makes it easier to determine rewards or penalties based on the quality of service provided. There are often specific benchmarks used for technical services, such as Mean Time to Recovery, Response, or Resolution (MTTR) and mean time between failures (MTBF). 

A well-defined service level agreement makes it a lot more difficult for either party to dispute whether the service matches what was initially agreed upon. As a CIO, make sure to have a service level agreement for each significant business relationship, and have these reviewed by a legal professional. 

Overview of SLAs: Penalties and exclusions 

Service level agreements can define how a service provider should deal with downtime. It can detail any reimbursements or compensation that should occur when the contract isn't followed. A typical remedy for a service breach is to provide a service credit to the customer. The service level agreement should define how service credits are to be calculated. An example would be to create a formula that gives out service credits based on the amount of downtime that exceeds the service level agreement's terms. The document also lists circumstances, or exclusions, under which these penalties do not apply. 

If you need help with setting up 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, Menlo Ventures, and Airbnb.