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Your Guide to Service-Level Agreements (SLAs)

man looking at service-level agreements on computer

What is an SLA?

A service-level agreement, or SLA, is typically an agreement between a service provider and their customer or client. In some cases, an internal SLA governs service between departments in an organization. It is also known as an SLA contract or vendor contract.

Service-level agreements define how services will be provided. For example, internet service providers may have an SLA that describes the upload/download speeds the customer can expect, how quickly outages will be resolved, and what penalties the provider will pay if internet downtime exceeds a certain annual threshold. 

A service-level agreement is different from a master service agreement, or MSA, which lists terms that will shape future transactions and agreements. It is also different from SOWs, or statements of work, which describes specific details such as timelines, activities, deliverables, pricing, and terms and conditions for one particular project.

An SOW may fall under an SLA, which may fall under an MSA. These contracts are all also distinct from a non-disclosure agreement, which binds one or more parties to confidentiality.

The objectives of a Service-Level Agreement

Service-level agreements meet three objectives:

  • Define the level and quality of service to be provided
  • Define how service level and quality will be measured
  • Explain remedies or penalties if service falls short of these definitions

The specific objectives of a service-level agreement will vary based on the parties and situation.

When do I need an SLA?

If you’re a service provider, you need to create and sign an SLA with your customer before rendering services. Service-level contracts set clear and measurable guidelines for both you and the customer. If for some reason service levels or quality don’t meet these expectations, the SLA provides recourse. If a client demands service that is outside what the SLA outlines, you can have them refer to the contract.

If you or your organization works with a service provider, a signed vendor contract at the beginning of service provides peace of mind. With penalties for breach of service laid out, you’ll rest assured that expectations will be met or remedied to your satisfaction.

Types of SLAs

There are three common types of SLAs:

  • Service-based: Service-based SLAs cover one service for all customers. This means that if a single type of service is available to every customer (on a particular contract, tier, plan, etc.), the service-based SLA applies to each of them.
  • Customer-based: In contrast to service-based SLAs, customer-based SLAs cover all services used by a single customer. An example of this would be service bundles. In some cases, there may even be more than one service provider on a customer-based SLA.
  • Multi-level: A multi-level SLA is used with organizational customers. In this situation, the service-level agreement is split into levels that correspond with the organization’s levels. Each level addresses a different set of customers for the same service.

Parts of a Service-Level Agreement

There are many possible parts to an SLA depending on the parties involved and the arrangement being made. Here are six important parts often included in a service-level agreement:

  • Agreement Overview: The SLA overview serves as a summary of the services to be delivered. This will also cover customer or client details and a description of how service will be measured.
  • Purpose: What is the goal of the parties involved in the SLA? In customer-based SLAs, the focus will be on the customer goals and how a service provider will help meet them. In an internal service-level agreement, all parties’ goals should be outlined.
  • Metrics: This part of the service-level agreement covers how success will be measured. Metrics include any KPIs or other measurements used to determine service level and quality.
  • Points of Contact: In addition to metrics, it’s important to know who oversees measurement and determines whether goals are met. This part of the SLA lists the people involved in the contract.
  • Parameters: What does each party need in order to meet the purpose of this contract? If a service provider can only take action once they’ve received data from the customer, that needs to be stated.
  • Remedies/Penalties: When something goes wrong, an SLA serves as a reference for consequences. A service provider may offer service credits, refunds, or something else as a penalty for falling short of providing services, for example.

If needed, these vendor contracts may have an appendix for supplementary information. Some SLAs also include details about exceptions, limitations, and cancellation conditions.

Limitations of SLAs

An SLA is only as good as what’s included in the contract. A struggling service provider may, for example, opt to fall short of providing the services with the least penalties attached. Alternatively, a customer may fail to provide necessary information for services to be rendered. In these situations, the stated purpose of the SLA may not be achievable.

Signing an SLA

It’s quite common to sign an SLA at the beginning of a new business relationship with a service provider. You’ve likely signed an SLA with your phone service provider, internet provider, and for any software subscriptions you use. Many companies use service-level agreements with their sales and procurement departments.

If you’re asked to sign an SLA, be sure to take a close look at the terms laid out. An SLA contract tells you what level and quality of service you should expect, and what will happen if those expectations are not met. Look at how the agreement defines and measures successful service, and whether you need to take any action if it falls short.

Creating an SLA

If you are a service provider, you’ll need to create an SLA each time you onboard a new customer or client. Alternatively, you may need an SLA if you’re an organizational leader at a company with collaborating service departments.

Creating an SLA doesn’t have to be overwhelming or complicated. There are many resources available to help providers get started. To begin, define the customer goal, then list out the specific services which will assist with reaching that goal. Determine what level of service and quality are required, and decide how to measure meeting those requirements. Finally, lay out what will happen if service falls short of meeting the goals.

With enough details, service-level agreements are legally enforceable. The more detailed the agreement is, the more enforceable it is. For this reason, it’s helpful to use contract creation software backed by legal experts. Robust contract software ensures that your SLA has all the required details and stays up to date without placing demand on time and resources.

Managing SLAs

Another benefit of using digital contracting software is that it reduces the workload of managing SLAs. Service-level agreements have to be revisited any time goals change or service levels need adjusting. Some have periodic reviews built into them, such as when contracts renew.

Managing SLAs for dozens or even hundreds of clients quickly becomes unrealistic manually. With the help of contract lifecycle management software, however, the process is automated. This results in less organizational thrash, more collaboration, and easier access to contracts for reviewing and making changes.

Thanks to automation and tools like Workflow Designer and the Ironclad Editor, contract lifecycle management software such as Ironclad is a game-changer in managing SLAs and other contracts for your business.

Next steps

Simplify your SLA process with Ironclad and get back to the tasks that require your expertise and focus. Sign up for a consultation here to be one step closer to creating your first service-level agreement. 


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