Service Level Agreements

Fri 29 December 2023

What are Service Level Agreements (SLAs)?

An SLA is a form of contract generally used for long term, business critical services provided by an external supplier. Whilst many of the main terms of a Service Level Agreement are common terms and conditions found in many types of business contracts, the specific service, performance and remedial and penalty terms generally require bespoke, specific and detailed consideration and drafting.

Service Level Agreements (SLAs) are frequently used in for IT contracts but they are also common in other businesses, sectors, and industries, such as :-

Facilities Management SLA Agreements - cleaning companies, security firms, and maintenance services use SLAs to guarantee response times, service quality, and uptime of specific systems and equipment.
Logistics contracts SLA’s - carriers and delivery services define delivery timeframes, package handling standards, and compensation for delays or damage through SLAs.
Manufacturing - suppliers and manufacturers often use SLAs to guarantee raw material delivery times, product quality, and production output levels.
Professional Services - consultants, law firms and marketing agencies have SLAs to define turnaround times for deliverables, project milestones, and communication frequency.
Customer Service - call centres, and online providers may have SLAs to specify response times for customer inquiries, complaint resolution timelines, and product return protocols.
Healthcare – for key supplies such as medical equipment maintenance and uptime guarantees.
Construction - contractors and architects often use SLAs to define project completion timelines, quality standards, and communication protocols with stakeholders.

Key Issues in Service Level Agreements

Scope of services - clearly define the services covered by the SLA, including exclusions and limitations.
Performance metrics – specifying precise measures to assess the SP's compliance with agreed-upon service levels. Examples include uptime percentages, response times, and resolution times for issues.
Service credits - appropriate compensation mechanisms for service failures, such as discounts, service fee reductions, or credits towards future services.
Reporting and monitoring - how service levels will be tracked, reported, and reviewed by both parties.
Dispute resolution - a clear process for addressing and resolving any disagreements arising from the SLA.
Service hours - days and times during which the SP is responsible for providing the service.
Escalation procedures - steps to be taken in case of service failures, specifying communication channels and response times for each escalation level.
Confidentiality and data protection - data security and privacy obligations, complying with relevant laws like the General Data Protection Regulation (GDPR).
Limitation of liability - defining the maximum extent of the SP's liability for service failures, with due consideration for English law principles of fairness and reasonableness.
Termination - grounds and procedures for terminating the SLA by either party.

Building in flexibility is often important

Notwithstanding the importance of detailed specifics with Service Level Agreements, as these contracts are often of high importance and long term, it’s equally important to agree ways to ensure the contract works well in practice, with suitable flexibility and practical ongoing co-operation. Ways to do this often include :-

Effective administration - a dedicated point of contact for both parties ensures smooth communication, issue resolution, and change management.
Monitoring and reporting - regularly track SLA performance using defined metrics and reports, highlighting trends and areas for improvement.
Proactive review and updates - schedule regular reviews to adjust the SLA to changing needs, technology, and regulations.