Updated July 27, 2020: 

An SLA's purpose is to define what sort of service the customer will receive and what their expectations should be in relation to that service.

Understanding Service Level Agreements (SLAs)

Service level agreements, which are commonly referred to as SLAs, are not meant to define the service itself. Instead, SLA features:

  • Specific details about the scope of services being provided, including guarantees, responsibilities, and priorities
  • Expected, measurable services at both their minimum and target levels
  • Customer responsibilities and duties
  • Descriptive reporting and tracking guidelines
  • Detailed expenses and fees
  • Specific problem-management procedures
  • Disaster-recovery procedures
  • Termination clauses

The SLA may be informal or legally binding, depending on the nature of the relationship between the provider and customer. Exact metrics will vary for each agreement, but the areas largely covered include:

  • Quality of work
  • Volume of work
  • Precision
  • Accuracy
  • Responsiveness
  • Speed
  • Efficiency

Covering these areas allows a service provider to establish a mutual understanding of what the customer can expect, what each party's responsibilities are, and what warranties or guarantees are provided. As such, definitions included in the SLA should be measurable and specific in order for the level of service to be rewarded, penalized, or benchmarked as needed.

SLAs are also commonly used among a company's internal departments, such as between IT and all others, which serve as the IT department's customers. SLAs may even be used in cloud computing, outsourcing, and other areas where the company turns to an outside supplier.

Types of Service Level Agreements

Since SLAs have many applications, they are typically divided into the following categories:

  • Customer-based SLAs: Both the service provider and customer create the SLA based on provided services; the SLA defines the working relationship in detail.
  • Service-based SLAs: Every customer working with the same service provider receives a similar SLA, which may be tweaked slightly to accommodate each customer's needs.
  • Multilevel SLAs: An SLA is divided into multiple levels, each of which specifies a series of customers using the service.

SLA Service Level Agreements vs. Contracts

A service level agreement differs from a contract in that all contracts must be finalized without indicating any provided services. Standard contracts don't encourage businesses to meet with customers regularly to go over performance reports. By contrast, and SLA implies regular assessments, negotiated agreements, adaptation options, and strong communication.

While an SLA differs from a contract, it can be either a legally binding or informal document, depending on your needs. In other words, an SLA can be included in a contract, although a contract isn't a requirement for an SLA.

In fact, many companies prefer to keep contracts and SLAs separate because revising the SLA is easier.

Why Do You Need an SLA?

Companies should use SLAs for a variety of reasons. For starters, an SLA details all information related to contracted services in a single document. The SLA clearly defines responsibilities, metrics, and customer expectations, which can help avoid issues down the road. That's because neither party can claim ignorance because both sides know what is expected of them.

An SLA is designed to protect both parties entering into the agreement, so it's a good move for everyone involved. However, an SLA associated with a significant contract should be reviewed by an attorney to avoid inadvertent or deliberate misinterpretation.

Your SLA should be aligned with the engagement's business objectives or technology. Misaligning the agreement could have a negative impact on the quality of delivered services, deal pricing, and your customer's overall experience.

Who Provides the SLA?

The majority of service providers have their own SLAs that they can customize for each client. In some cases, they may have multiple SLAs reflecting different levels of service at various price points.

Having an SLA template in place is a good start because it can be reviewed and modified as needed. It's important to note, however, that most SLAs tend to favor the supplier, which is why having the client and their lawyer go over the SLA is a key step before signing the document.

If you need help writing or reviewing an SLA service level agreement, post your job 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.