October 31, 2022
What Does A Service Level Agreement Include?
A Service Level Agreement (SLA) is a contract between a client and a service provider. It is a legally binding document that says what services they must carry out, the expected quality of that work, and how the client will compensate the provider for their services.
The legal side of business can be complex and full of jargon, but if you find it a little confusing at first, don’t panic. You’re in the right place! This article covers the ins and outs of an SLA. By the time you’re done reading, you’ll know exactly what an SLA should include and how to put one together.
The purpose of a contract here is to ensure that both parties are (literally) on the same page. Service Level Agreements minimize conflict and misunderstanding for the rest of the business relationship.
What is a Service Level Agreement?
Let’s break down what we mean by ‘Service Level Agreement’. It’s a legally binding agreement that establishes what level of service the client requires from the provider.
The contract should be a comprehensive record of the services required by the client, and how the provider will meet the client’s standards. This includes the scope of work, how soon the deliverables are needed, terms of payment, and resolution protocol for any potential disputes.
Traditionally, any business contract such as Service Level Agreements would have been physical paper documents signed in pen. But businesses today tend to use online documents which are completed with digital signatures. This is easier for clients who work with providers from different countries.
To give a better understanding of what an SLA is, let’s take a look at a hypothetical example.
Many modern companies rely on cloud-based phone systems for both internal and customer communications. The company (the client) will pay a cloud SaaS (Software as a Service) business (the provider) to host the cloud phones and their data system.
This example SLA would establish exactly what cloud telephony services the client can access and how long the services are available for. There would also be an agreement on data protection responsibility, since phone calls can contain sensitive information.
A Service Level Agreement is needed to protect both parties in this transaction. The client needs a guarantee that the provider will meet their needs efficiently and that any issues will be repaired quickly. On the other hand, the provider needs a legal declaration that they will be paid for their work within the agreed timeframe.
Service Level Objectives
Now that we’ve established the basics of Service Level Agreements, we can get into the details. The overall aim of an SLA is to ensure all parties get their business needs met. But there are more specific goals known as Service Level Objectives (SLOs) which should be set out in the Agreement.
SLOs are the performance metrics used to determine whether the provider is meeting the agreed level of service. The client will set out their expectations for each metric over a specific timeframe.
Here are some commonly used SLOs that might be useful for your next Service Level Agreement template:
- Turn-Around Time (TAT): How long it takes to complete a certain task.
- Uptime: How much time the system spends working and available, as a measure of reliability.
- Mean Time To Recover/Repair (MTTR): The average time taken to recover the service after an outage or malfunction.
- Mean Time Between Failures (MTBF): The average duration between system failures.
Benefits of Service Level Agreements
SLAs improve the business relationship between all parties involved. Having one comprehensive agreement gives both parties peace of mind and sets clear expectations.
The legal language also provides transparency even if the client and provider have different communication styles. All terms used in the SLA must be clearly defined which minimizes misunderstanding.
Fundamentally, using a legally-binding contract is far more secure than relying on email communication or phone calls. You can streamline the process even further by using contract management software.
The other crucial reason to use an SLA is that you are guaranteed a high quality service. Or, if you’re on the other side of the table, you are guaranteed fair compensation for providing that service.
SLAs increase transparency between clients and their customers. More accurate estimates for availability and repair times means the customers know what to expect from a service.
Reasonable turnaround times and transparent communication will boost your company's CSAT score. So, in summary, SLAs are good for clients, providers, and customers—it's a win-win for everyone involved.
What does a Service Level Agreement include?
A watertight Service Level Agreement contains many elements. Missing just one or two sections in the contract could cause serious problems if any disputes are raised after it’s been signed. Fortunately, you can use this Service Agreement template to ensure you include anything!
There are 16 sections that must be included in any effective Service Level Agreement. We’ve summarized each one in plain English to help you put together your own SLA.
This is a glossary for all the other sections in the document. All parties need to have exactly the same understanding of the words used in the contract, hence the need for a list of official definitions.
The specific terms defined in this section may vary depending on the individual contract. Common definitions needed in an SLA include ‘services’, ‘fees’ and ‘key dates’.
This is a short general statement that covers the scope of the SLA. Essentially, the Service Provider agrees to render services to the Client within the specified time frame; the Client also agrees to pay the required fees to the Service Provider.
‘Location’ is fairly straightforward. If the services are being provided in a specific place (eg. an office building) the location details need to be included here.
If the client is hiring a warehouse management software operation contractor, for example, then they must specify which warehouse locations the contractor is going to be dealing with.
The provider may need to use subcontractors to carry out some services. This section says whether or not the provider must get permission from the client before using a subcontractor. The service provider agrees to be responsible for the quality of work provided by a subcontractor.
Subcontractors help boost Service Level Objective metrics if the main service provider is struggling. If the uptime and repairs targets aren’t being met, then a subcontractor could provide a QoS solution accelerator.
Fees means much more than just the amount the client will pay for the service. It also includes how soon invoices must be paid, and what payment methods are accepted, whether cash, checks or virtual credit cards.
Alongside these payments, the client agrees to cover any necessary costs incurred while the service is being provided. Finally, the Fees section includes tax responsibilities for each party.
6. Client Obligation
This is an agreement that the client will cooperate fully with the service provider and assist them as needed.
7. Intellectual Property
Any intellectual property created by the provider (in order to render the agreed services) belongs to the client. Intellectual property could include artwork, code or reports, for example.
In order to provide high quality services, the provider and client may need to share confidential information with each other. This section protects any shared information from reaching third parties who are not part of the Service Level Agreement.
While working with the client, the service provider must not compete with the client in business. The contract must specify for how long after the termination of services the provider cannot be in competition with the client.
This is a very short section of the SLA where the service provider agrees not to infringe on the intellectual property of any other third party.
11. Limitation of Liability
Hopefully you’ll never need to refer to this section! It states that any damages that happen over the duration of the SLA are each party’s individual responsibility. Neither party is responsible for the other’s accidents/damages unless they are directly involved.
Indemnity is legal protection against, or exemption from, losses. The client agrees to indemnify the service provider for any losses caused by providing the agreed services.
13. Time for Performance
This one’s easy: the service provider must meet any and all deadlines specified in the Service Agreement. If they miss any of the agreed timings then it is a breach of the contract.
Termination is one of the biggest causes of conflict when it comes to business relationships. This section includes how many days notice a party must give if they wish to terminate the SLA.
One party may decide to terminate the agreement if the other party isn’t holding up their end of the agreement to a high enough standard.
15. Relationship of the Parties
Both parties agree that their business relationship, as detailed in the SLA, is only for the duration of this specific service agreement. This means that nothing in the contract can be carried forward to any future collaborations, and that neither party is responsible for the other once this service is complete.
16. General Provisions
General Provisions explain the jurisdiction which the Service Agreement is under. For example, an SLA between two American companies would explain the state and federal laws that the contract is governed by.
The provisions also include details of the amendment process and what to do if a court decides the contract is invalid.
And there you have it! A complete guide to the contents of a Service Level Agreement and how they can help to protect your company. You might choose to send individual SLAs to each of your clients, or develop a standard form using a Google forms alternative for your clients’ ease and convenience.
SLAs are the foundation of any strong client-provider relationship. Getting it right means more transparency, better communication, and higher quality services for all parties.
Legal contracts can be complicated, but we hope this article makes things clearer. Good luck!