What Does the Term Service Level Agreement Meaning

A service level agreement (SLA) is a contract between a service provider and its customers that documents the services that the provider will provide and defines the service standards that the provider is required to meet. This Agreement is based on the requests of the End User Companies. It is a customizable contract that allows you to play with different standards and conditions so that both parties benefit from the final version of the document. This type of SLA can be divided into subcategories. Although service levels, service credits, and the right to terminate are the primary provisions of a service level agreement, an SLA may include other elements depending on the structure of the entire contract, such as. B the following: Therefore, measurability is important. Quantifiable metrics are clear and specific and can be divided into targets that represent preferred performance and minimum values that indicate acceptable performance. Incentives and penalties may be incorporated with a clause indicating when the customer or service provider has the right to terminate the contract. How is an SLA different from a contract? The main difference is that contracts can be concluded without specifying service levels. While most companies are unlikely to meet regularly with service providers to report on performance under a standard contract, the service level agreement involves a negotiated agreement, regular evaluation, strong communication, and the ability to customize. When IT outsourcing emerged in the late 1980s, SLAs evolved into a mechanism to govern such relationships.

Service level agreements set out a service provider`s performance expectations and set penalties for non-compliance with targets and, in some cases, bonuses for exceeding. Since outsourcing projects were often customized for a specific client, outsourcing SLAs were often designed to govern a particular project. Other measures include the schedule for prior notification of network changes that may affect users and general statistics on the use of the service. An SLA document is the basic pillar of a successful customer-supplier relationship and will take on a new dimension in 2021. Due to the proliferation of digital solutions and the rapid rise of Everything as a Service (XaaS), strong SLAs are needed to maintain quality of service and support business processes. Here are seven best practices that can help you achieve this. This type of penalty requires a seller to pay compensation to the customer in an amount equal to the compensation specified in the contract. The amount depends on the extent of a breach and damage and may not constitute a full refund of what a customer paid for the service. A indemnification clause is an important provision in which the service provider undertakes to indemnify the client company for breaches of its guarantees.

Indemnification means that the supplier must pay the customer all third-party litigation costs arising from the breach of warranties. If you are using a standard SLA provided by the service provider, it is likely that this provision does not exist. Ask your in-house counsel to draft a provision that is simple to include, although the service provider may wish for further negotiations on this point. In addition to detailing the services that customers can expect from their provider, SLAs can also detail the services that providers do not offer. These can help make points of confusion or tacit assumptions of the customer about what is included in their service. Exclusions facilitate access to service offerings in the event of a discrepancy. Many agreements begin with an overview that describes the main basis for agreement such as the contract start date, the parties involved, and a general summary of the expected service offerings. The summary could include key terms and clarify the responsibilities of the parties in the agreement. For example, if they use the term „seller“ in the contract, they can explain who this title refers to in this first part of the document. Service credits are useful for getting the service provider to improve its performance, but what if the service falls well below the expected level? If the SLA contained only one service credit, the customer might be able to pay for an unsatisfactory overall service (albeit at a reduced rate), provided that the service provided is not so bad that it constitutes a material breach of the contract as a whole.

The solution is to include a right for the customer to terminate the contract if the provision of services becomes unacceptable. Therefore, the SLA should include a critical service level failure level below which the service provider has this right of termination (and the right to bring an action for damages). For example, if service credits take effect when a service level error has occurred twice in a given period, the SLA could indicate that the customer has the right to terminate the contract for hardware violations if, for example, the service level has not been reached eight times in the same period. As with service credits, each service level must be considered individually and weighted according to the importance of the business. With an online service, the availability of that service is essential, so you can expect the right to terminate earlier than not providing routine reports in a timely manner. In addition, the SLA could aggregate certain service levels to calculate service credits and the right to terminate in the event of a critical outage. SLAs sometimes include aggregated rating systems for these purposes. The following SLA examples from three of the world`s largest technology companies explain what an SLA can look like, its purpose, and its components. In these cases, the result is a business outcome, not a specific activity, task, or resource. But even in a results-driven transaction, SLAs serve as key performance indicators against those business outcomes. The SLAs of these companies will not describe the technical or operational requirements for specific tasks; Rather, they describe the end customer`s goals.

For this approach to work well, these outcomes must be clear, there must be ways to measure the achievement of outcomes, roles and responsibilities must be clearly defined, and the provider must have control over the end-to-end service required to achieve results. A review of the provider`s service delivery levels is necessary to enforce a service level agreement. If the SLA is not properly fulfilled, the customer may be able to claim the compensation agreed in the contract. Then, the customer, who takes each individual service in turn, must specify the expected performance standards. This varies depending on the service. Using the sample report above, a potential service level could be 99.5%. However, this must be carefully weighed. Often, a customer wants performance standards at the highest level. While this is understandable, in practice it can be impossible, unnecessary or very expensive. On the other hand, the service provider may well argue that service levels should be deliberately set low to ensure that the service can be provided at a competitive price. It`s all a matter of judgment and the customer needs to carefully consider each level of service – it often happens that individual services are weighted differently depending on the importance of the business.