What is a Service Level Agreement? How to write an SLA?

In the world of a large variety of services, it becomes crucial to establish the “rules of the game” meaning to define what services your provider will supply you, under what conditions, what KPIs will be used to assess the quality of the service, and what will happen in case of the downtime. A Service Level Agreement (SLA) is exactly what orchestrates these questions.

In this article, we will discuss what an SLA is, the types of it, in what situations you would need an SLA, how to write it, and the consequences of not meeting SLA requirements.

1. What does SLA stand for?

SLA is short for Service Level Agreement. It is an agreement between a service provider and its customers that outlines the services that the provider will provide and the standards that it must meet.

When it comes to any contract with outsourcing or technology vendors, SLAs play a crucial role. They not only define the type and quality of services that are expected but also specify the actions that can be taken if those requirements are not met. Essentially, an SLA serves as a mechanism for addressing service failures, including the time frames when it must be done.

2. Types of SLAs

There are different types of Service Level Agreements that aim to suit different service scenarios and meet the specific needs of customers and service providers.

To understand what type of an SLA is better for you, you need to consider what kind of provider you have, the type of service, expectations, and objectives.

1. Customer-based SLA: it is customized for a specific customer and outlines the service levels that will be provided to that customer.
2. Service-based SLA: it defines the same service levels for all customers using the same service.
3. Multilevel SLA: it sets different levels of service for different customers, depending on their needs.
4. Internal SLA: it is an agreement between different teams or departments within an organization that provide services to each other.
5. Vendor-based SLA: it is an agreement between an organization and a third-party vendor that provides services to the organization.

3. When do you need a Service Level Agreement?

The need for an SLA is not defined by the industry as it can be used in different situations whenever you have a service provider regardless if it is a third-party one or an internal one. Having an SLA is never extra since it not only defines the objectives and expectations you set regarding your service provider but also establishes the consequences that follow in case the requirements are not met by either party. It grants security to both the customer and the vendor.

Here are some of the cases where signing a Service Level Agreement is highly recommended:

1. Outsourcing: if an organization decides to contract services to a third-party vendor, an SLA can be used to establish and clarify the expected service standards, and to ensure that the vendor meets those standards.
2. Service-based contracts: In contracts where services are being provided, an SLA can be utilized to set and guarantee the delivery of service levels.
3. Cloud computing: If an organization employs cloud services, an SLA can aid in defining the requirements for service levels such as uptime, availability, and others, which the provider is obligated to fulfill.
4. Internal service delivery: SLAs can be useful for defining the expected service levels between different departments or teams within an organization.
5. Critical business functions: SLAs can be important for defining the service levels of critical business functions such as customer support, IT infrastructure, and security.

3. How to write a Service Level Agreement?

The structure of a Service Level Agreement depends on the chosen type, who are the stakeholders, to what extent flexibility is allowed, what KPIs are used to evaluate service quality, and so on.

However, the following structure can be used for the general outline (and then can be tailored for the specific needs of the signatories):

1. Signatories: name of the companies, their legal addresses, definitions of the terms used in the SLA (e.g. the terms “agreement” and “confidential information”, the definition of integrations (if any), etc.)
2. Definition of the service: it is essential to be precise when summarizing the characteristics of the provided service, the scope of work, expectations, and the performance standards.
3. Service level objectives: the specific objectives that the service provider is expected to meet, such as response times, resolution times, and uptime. Clearly establish the types of “force majeure” and the way both parties must react in case of every one of them.
4. Responsibilities: the roles and responsibilities must be established for both the vendor and the customer, including any specific tasks or deliverables.
5. Metrics and reporting: this is a specific subject that must be tailored to every situation. The main principle to follow is to define the KPIs that are measurable, achievable, and aligned with the service objectives. Examples: uptime and availability,  response time, resolution time, customer satisfaction, and penalties.

4. What happens if SLA requirements are not met?

Defining the measures and actions that need to be undertaken gives the customer and service provider a degree of responsibility and obligation. Service Level Agreement’s breach is a serious matter and should be defined in an agreement by both parties. Unless it was not in the provider’s control, a complete outage of the service – with no acknowledgment of it by the provider – may be considered an SLA breach and lead to:

1. Penalties: It can be specified in the agreement that in case of the outage or provider’s failure to meet service quality requirements, it must pay its customer a compensation.
2. Credits/discounts: In some cases, the vendor may be obliged to provide its customer with discounts or refunds if the service levels are not met.
3. Termination of partnership: The customer may have the right to withdraw from the agreement and terminate the partnership if the provider fails to maintain the expected service.
4. Escalation procedures: In case of a dispute, the SLA may define what institutions/parties will regulate it.
5. Re-negotiation: in case of recurring failure by the vendor in providing the service, the SLA may be re-negotiated. Perhaps, the defined objectives were not reachable.

5. Conclusion

A Service Level Agreement is an important mediator between the customer and the service provider especially if it is a long-term partnership. It needs to be composed carefully so the interests of both parties are taken into account and in case of a dispute, there is a clearly defined procedure fortis regulation.